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THE  FEDERAL  RESERVE  SYSTEM 

THE  COURSE  OF  THE  FEDERAL  RESERVE  BANKS 
BEFORE  AND  DURING  THE  PRICE  CRISIS 
AND  READJUSTMENT 


Address  by 


GEORGE  J.  SEAY 

GOVERNOR  OF  THE  FEDERAL  RESERVE  BANK  OF  RICHMOND 


Before  the 


NORTH  CAROLINA  BANKERS’  CONVENTION 
AT  PINEHURST 


April  26-28,  1922 


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THE  FEDERAL  RESERVE  SYSTEM 

THE  COURSE  OF  THE  FEDERAL  RESERVE  BANKS 
BEFORE  AND  DURING  THE  PRICE  CRISIS 
AND  READJUSTMENT 

Address  by 

GEORGE  J.  SEAY 

GOVERNOR  OF  THE  FEDERAL  RESERVE  BANK  OF  RICHMOND 


Before  the 


NORTH  CAROLINA  BANKERS’  CONVENTION 
AT  PINEHURST 

April  26-28,  1922 


Published  by 

THE  FEDERAL  RESERVE  BANK  OF  RICHMOND 


May,  1922 


Digitized  by  the  Internet  Archive 
in  2016 


https://archive.org/details/federalreservesyOOseay 


‘Sx  \^f  ■ 

Federal  Reserve  System 

the  Federal  Reserve  Banks  Before  and  During  the 
Price  Crisis  and  Readjustment 


Mr.  President  and  Members  of  the 

North  Carolina  Bankers’  Association: 

(i- 

Having  an  intimate  knowledge  of  the  stress  under  which  you  have 
labored  for  several  years,  it  is  a source  of  unspeakable  gratification  to  meet 
with  you  at  a time  of  recovery,  although,  as  yet,  only  in  part,  from  the  mis- 
fortunes and  the  depression  which  came  upon  you  as  the  outcome  of  the  war 
and  its  consequences,  and  which,  perhaps,  to  many  of  your  people  brought 
trials  greater  than  any  they  ever  passed  through. 

It  is  a good  time  to  take  stock  and  determine,  if  we  can,  whether  it  is 
not  altogether  likely  that  your  banks,  nevertheless,  will  emerge  from  their 
troubles  with  the  resources  and  experience  which  will  enable  them  to  quickly 
surpass  the  highest  level  of  prosperity  ever  reached  in  the  history  of  your  State. 
I may  venture  to  say  that  I consider  this  outcome  certain.  The  history  of  a 
state  is  a history  of  all  its  people,  and  there  have  been  and  will  continue  to  be 
always  varying  degrees  of  fortune  and  misfortune  among  individuals.  But 
we  will  consider  the  history  and  welfare  of  the  banks  of  the  State  as  a whole. 

I was  requested  to  speak  on  the  Federal  Reserve  System,  but  only  part 
of  my  talk  will  be  on  that  subject.  Our  commercial  and  agricultural  life  is 
bound  up  with  the  banking  business,  and  the  banking  business — of  non-members 
as  well  as  members— is  inseparably  linked  with  the  operations  of  the  Federal 
Reserve  System,  so  the  influence  of  the  Federal  Reserve  System  will  nevertheless 
permeate  everything  I shall  have  to  say.  This  will  be  something  of  a review. 

I remember  a small  boy  in  my  home  town  who  on  one  occasion  was 
interrogated  as  to  his  progress  in  his  studies.  He  said  his  class  was  then  having 
a review.  To  test  his  understanding,  his  father  asked  him  what  that  meant, 
and  quick  as  a flash  he  replied:  “You  commence  where  you  was  and  you  go 
where  you  is.  So  I will  commence  “where  you  was”  before  the  Federal  Reserve 
System  came  into  existence.  It  is  not  my  purpose  to  take  advantage  of  your 
courtesy  in  inviting  me  to  speak  to  be  controversial,  but  I will  state  certain 
facts  and  leave  them  with  you  for  digestion,  and  in  considering  these  facts,  I 
will,  perhaps,  be  entitled,  at  times,  to  express  a personal  opinion  or  conviction, 
since  that  is  so  much  the  fashion  in  these  troubled  days. 

W hen  discussing  banking  transactions  and  banking  practices  and  banking 
history,  a due  proportion  of  statistics  cannot  be  avoided,  but  some  of  the  figures 
which  I shall  recite  tell  such  a vivid  tale  and  are  so  full  of  encouragement  that 
they  cannot  fail  to  stir  the  mind  and  the  imagination.  So  let  me  give  you  a 
comparison  between  then  and  now. 


n 


The 

The  Course  of 


3 


A COMPARISON  OF  BANK  RESOURCES 


In  1914,  prior  to  the  organization  of  the  Federal  Reserve  Banks,  taking 
June  30th,  the  date  on  which  reports  are  compiled,  the  aggregate  resources 
of  all  your  State  banks,  then  422  in  number,  including  branches,  were  $89,236,000 
and  their  individual  deposits  $62,794,000. 

The  state  banks  of  the  country,  particularly  those  aggressive  state 
banks — if  I may  presume  to  use  the  term — which  are  opposing  the  efforts  of  the 
Federal  Reserve  Banks  to  give  the  country  a par  collection  plan,  are  accustomed 
to  contrast  their  numbers  and  banking  power  with  the  national  banks,  and 
sometimes  with  the  whole  Federal  Reserve  System  including  state  bank  members. 
The  state  banks  have  the  ascendency  in  numbers  in  your  State  and  in  the  country, 
as  we  all  know,  and  the  national  banks  of  North  Carolina  at  the  time  mentioned  in 
1914  were  comparatively  few — only  73.  These  73  banks,  however,  had  aggregate 
resources  of  $67,262,000  and  individual  deposits  of  $33,805,000.  The  national 
banks,  therefore,  were  of  much  larger  average  size. 

Seven  years  later,  having  passed  through  the  most  extraordinary  period 
of  the  world’s  history,  your  banks,  both  state  and  national,  have  emerged  not 
reduced  in  number  nor  with  resources  diminished,  but,  on  the  contrary  greatly 
increased  in  number  and  power.  Your  state  banks  increased  135,  making 
the  number  557,  with  branches,  on  June  30,  1921,  having  aggregate  resources  of 
$242,374,000,  with  individual  deposits  of  $157,627,000.  The  individual  deposits 
of  your  state  banks  have  increased  practically  two  and  a half  times,  and  the 
total  resources  have  nearly  trebled.  The  resources  of  the  state  bank  members, 
15  in  number,  were  $50,587,000. 

Within  the  same  period,  your  national  banks  increased  14  in  number, 
making  87,  having  resources  of  $144,245,000  and  individual  deposits  of  $90,429,- 
000,  making  the  total  resources  $386,000,000  against  $156,000,000  in  1914. 
The  individual  deposits  of  the  national  banks  have  grown  in  a somewhat  greater 
ratio  than  those  of  the  state  banks. 

Of  course,  many  banks  as  well  as  individuals  during  that  time  suffered 
misfortune  and  were  cut  down.  That  is  the  history  of  corporations  and  business 
concerns  as  well  as  of  individuals,  and  sometimes  it  is  the  history  of  nations. 
But  the  world  goes  on ! 

In  the  period  under  discussion,  which,  bear  in  mind,  is  the  period  of  the 
Federal  Reserve  System  during  world  upheaval — social,  political,  financial  and 
commercial,  the  banking  power  of  the  entire  nation  also  grew  beyond  precedent, 
but  not  quite  with  the  same  percentage  of  growth  shown  by  the  banks  of  North 
Carolina.  For  a period  of  more  than  two  decades,  the  banking  business  in  the 
states  of  North  Carolina,  South  Carolina  and  Virginia  has  outstripped  the  rate 
of  growth  of  the  country  as  a whole;  and  when  we  consider  the  magnificent 
endowment  of  this  section  in  climate,  soil  and  natural  resources,  without  at- 
tempting the  prophetic,  we  have  reason  in  experience  to  expect  continuance  of 
this  ratio  of  development. 


4 


INCREASE  IN  THE  BANKING  POWER  OF  THE  COUNTRY 

In  the  country-at-large  in  this  period,  the  banks  increased  in  number 
from  26,765  to  30,812,  and  their  resources  from  $26,971,000,000  to  $49,671,- 
000,000.  There  is  no  information  as  to  whether  all  the  banks  of  the  country 
reported  on  either  of  the  dates  chosen  for  comparison,  but  the  comparison 
covers  all  reporting  banks. 

It  is  highly  interesting  to  compare  the  development  of  the  state  and  the 
national  banks  in  the  whole  country,  as  well  as  in  your  own  State,  and  for  that 
purpose  I incorporate  a table  in  this  address,  to  which  reference  can  be  made. 

The  national  banks  increased  in  number  from  7,525  to  8,154,  and  their 
resources  from  $11,482,000,000  to  $20,518,000,000.  The  state  banks,  that  is, 
the  commercial  state  banks,  doing  a similar  business  to  the  national  banks  (to 
make  the  comparison  fair)  increased  astonishingly  both  in  number  and  resources : 
in  number  from  14,512  to  18,875,  and  in  resources  from  $4,354,000,000  to 
$14,199,000,000. 

The  loan  and  trust  companies,  which  in  many  respects  do  a regular 
banking  business,  as  you  know,  actually  decreased  in  number — due  to  con- 
solidation doubtless — but  increased  in  resources  from  $5,489,000,000  to  $8,181,- 
000,000. 

It  will  be  observed  that,  although  the  commercial  state  banks,  not  in- 
cluding trust  companies,  outnumber  the  national  banks  by  more  than  two  to 
one,  their  total  resources  are  six  billions  less  than  the  resources  of  the  national 
banks. 

How  do  these  figures  compare  with  the  banking  power  of  all  the  banks 
in  the  Federal  Reserve  System,  both  national  and  state,  including  trust  com- 
panies? 

The  resources  of  the  state  bank  and  trust  company  members  of  the 
System  on  June  30,  1921,  were  $10,009,000,000,  making  the  aggregate  resources 
of  all  members  of  the  System  $29,639,000,000  against  resources  of  $12,371,000,000 
of  the  commercial  state  banks  and  trust  companies  not  in  the  System.  The 
System  thus  embraces  about  60  per  cent  of  the  entire  “banking  power”  of  the 
country,  as  usually  expressed,  including  mutual  savings  banks  and  all  private 
banks,  but  about  70  per  cent  of  the  commercial  banking  power.  In  April,  1915, 
about  five  months  after  organization  of  the  Reserve  Banks,  their  total  resources 
were  $340,000,000,  all  reserve  deposits  not  having  been  paid  in  at  that  time. 
In  October,  1920,  their  resources  had  grown  to  $6,600,000,000,  and  the  Reserve 
Banks  were  then  lending  their  members  $3,100,000,000,  although  the  reserve 
deposits  of  members  were  only  about  $1,800,000,000.  The  amount  of  Federal 
Reserve  notes  outstanding  then  was  $3,400,000,000.  Such  is  the  value  and 
power  of  the  credit  and  currency  principles  embodied  in  the  Federal  Reserve 
Act.  In  April,  1915,  the  resources  of  the  Federal  Reserve  Bank  of  Richmond 
were  only  $15,500,000;  at  the  greatest  period  of  expansion  they  reached  $300,- 
000,000.  The  Richmond  bank  organized  with  less  than  a dozen  employees. 
They  now  number  773,  including  the  Branch  at  Baltimore. 


5 


INCREASE  IN  CURRENCY  CIRCULATION 

During  this  wonderful  period  under  study,  the  money  circulation  of 
the  country  increased  from  $3,630,000,000  in  1914  to  $6,363,000,000  on  Decem- 
ber 1,  1920,  an  increase  of  $2,733,000,000  in  seven  years.  In  one  year,  1917,  it 
increased  $782,000,000,  and  in  1918,  $908,000,000.  These  tremendous  increases 
can  be  appreciated  only  by  comparison.  In  the  six  years  from  1908  to  1914 
(August  1st),  the  increase  in  all  forms  of  money  in  circulation  was  only  $390,- 
000,000,  not  quite  $50,000,000  per  annum. 

On  one  occasion  early  in  the  development  of  the  System,  the  governors 
of  the  Federal  Reserve  Banks  together  with  representatives  from  the  Federal 
Reserve  Board  met  in  Minneapolis  at  the  Federal  Reserve  Bank,  of  that  city,  to 
hold  one  of  their  periodical  conferences.  The  speaker,  among  others,  made  a 
short  talk  and  endeavored  to  picture  the  probably  development  of  the  Federal 
Reserve  System,  although,  it  must  be  confessed,  no  idea  of  the  magnitude  of 
growth  and  the  rapidity  of  development  which  has  since  taken  place  was  then 
in  mind.  But  some  allusion  was  made  to  the  power  which  the  Federal  Reserve 
System  might  exercise  in  the  banking  operations  of  the  nation.  Mr.  James  J. 
Hill,  one  of  the  greatest  figures  the  Northwest  has  ever  produced,  a great  railroad 
builder,  as  you  know,  derided  the  probabilities  which  I ventured  to  outline,  and 
said  that  to  him  it  seemed  that  we  might  as  well  expect  the  “tail  to  wag  the 
dog.”  Since  that  time,  the  “tail”  has,  indeed,  grown  to  unexpected  proportions, 
and  has,  as  you  know,  been  accused  on  many  sides  of  “wagging  the  dog.”  Not 
so,  however.  The  dog  is  still  “the  thing,”  and  has  fully  grown  up  to  his  tail, 
and  should  wag  under  his  own  power.  But  the  point  I am  endeavoring  to 
illustrate  is  that  the  dog  has  been  neither  killed  nor  seriously  injured  by  the 
supposed  wagging,  but  has  grown  to  greater  dimensions  than  any  pre-historic 
animal. 

The  total  loans  and  discounts  of  all  the  banks  of  the  country  to  their 
customers  on  June  21,  1921,  were  $28,932,000,000.  The  maximum  amount  of 
paper  rediscounted  by  Federal  Reserve  Banks  on  a given  date  was,  approxi- 
mately, $3,100,000,000,  or  only  about  11  per  cent,  of  that  total.  This  should 
be  accepted  as  evidence  that  too  much  has  been  made  of  the  charge  that  the 
Federal  Reserve  Banks  control  the  bank  credit  of  the  country,  or  that  Federal 
Reserve  Bank  rates  control  interest  rates.  They  reflect  conditions;  they  do  not 
make  them.  They  cannot  prevent  rates  going  low,  and  they  exercise  only  a 
moderating  influence  on  rates  going  high  or  too  high. 

THE  FEDERAL  RESERVE  SYSTEM 

There  is  no  exact  or  close  parallel  in  the  banking  system  of  any  country 
to  the  Federal  Reserve  System.  We  all,  perhaps,  hear  more  of  the  Bank  of 
England  and  its  operations  than  of  any  other  central  bank,  although  the  Bank 
of  France  is  in  many  respects  the  greatest  of  all  central  banks.  In  France  there 
are  only  a few  joint  stock  banks. 

In  the  United  Kingdom,  there  were  only  38  banks  up  to  a recent  date, 
but  these  banks  had  established  9,462  branches,  or  one  branch  to  about  every 
5,000  population.  In  the  neighboring  Dominion  of  Canada,  where  before  the 


6 


organization  of  Federal  Reserve  Banks,  they  had  a banking  system  superior  to 
ours  in  some  respects,  particularly  as  to  the  currency,  there  are  only  19  banks, 
but  these  banks  have  3,545  branches.  These  conditions  are  recited  for  the 
purpose  of  bringing  them  in  contrast  with  the  more  than  30,000  independent 
banking  institutions  of  all  classes  in  this  country,  9,745  (June  30,  1921)  being 
combined  in  one  system — that  is,  the  Federal  Reserve  System.  Let  us  consider 
what  has  happened  under  the  Federal  Reserve  System. 

There  are  some  who  allege  that  the  policies  which  they  ascribe  to  those 
charged  with  the  administration  of  the  System,  were  the  ‘‘direct  cause  of  de- 
flation in  prices”  and  ‘‘destruction  of  the  purchasing  power  of  a large  portion  of 
the  nation”  by  reason  of  the  losses  inflicted  upon  those  affected  by  decline  in 
the  prices  of  that  which  they  produced  or  held.  Even  if  this  were  admitted, 
during  the  operation  of  the  System  there  has  been,  nevertheless,  an  unparalleled 
advance  in  the  banking  power  of  the  country  which  can  fairly  be  attributed  to 
the  working  of  the  System,  as  administered.  And  if  the  distribution  of  wealth 
has  been  uneven,  and  if  misfortune  has  fallen  heavily  on  part  of  our  people,  it  is 
undoubtedly  true  that  the  wealth  of  our  country,  or  the  wealth-producing  power, 
and  the  facilities  for  an  enlarged  commerce  have  been  increased,  notwithstanding 
the  destruction  or  waste  of  much  capital  by  war.  I have  stated  many  of  the 
facts  and  will  give  others  which  demonstrate  that  we  are  not  prostrated  but 
have  accumulated  wealth  and  power,  and  have  the  machinery  for  greater  ac- 
complishment, and  it  is  due  in  very  large  part  to  the  operation  of  the  Federal 
Reserve  banking  system.  Of  that  there  can  be  no  doubt  whatever.  Of  course 
it  may  be  argued  that  we  might  have  everything  which  we  now  have  and  more, 
too,  under  a different  policy.  Any  man  may  charge  that,  and  no  man,  however 
wise,  is  in  position  to  refute  it.  ‘‘Man  never  is,  but  always  to  be  blessed.” 

However,  consider  this:  during  the  seven-year  period  since  the  organiza- 
tion of  the  Federal  Reserve  System,  the  banking  power  of  the  country  has 
grown  more  than  it  grew  in  any  three  decades  prior  to  that  time,  and  there  has 
been  greater  stability  in  the  conduct  of  the  banking  business  the  country  over; 
indeed,  the  banking  power  has  developed  almost  as  much  within  this  brief 
period  as  it  had  during  the  entire  period  of  banking  up  to  that  time.  The 
banks  of  your  own  State,  both  national  and  State  banks,  up  to  1913,  from  the 
beginning  of  their  organization,  had  acquired  resources  amounting  to  only 
$156,000,000,  and  yet  within  the  seven-year  period  mentioned,  they  added 
$230,000,000.  The  total  is  down  $66,000,000  from  the  peak  of  inflation,  but 
because  of  that  shall  we  take  no  account  of  the  tremendous  increase  which 
remains?  The  record  must  be  admitted  to  be  amazing,  and  it  had  a cause. 

A distinguished  critic  states,  in  an  article  contributed  to  the  Raleigh 
News  & Observer  of  April  27th  which  was  distributed  by  the  publishers  in  the 
convention,  that  ‘‘from  January  1,  1920  to  September  6,  1921  the  total  de- 
posits of  the  national  banks  of  the  United  States  shrank  from  $17,866,000,000  to 
$14,561,000,000,  the  total  loss  in  deposits  for  this  period  being  $3,305,000,000.” 
This  he  attributes  to  the  “destructive  contraction  policy”  of  the  Federal  Reserve 
System. 

An  analysis  of  this  “loss  in  deposits”  shows  that  $1,230,000,000  occurred 
in  bank  deposits  and  $340,000,000  in  Government  deposits.  During  the  period 


7 


specified  by  the  critic  the  loans  of  the  national  banks  were  reduced  $809  000  000 
It  is  well  known  that  deposits  are  built  up  through  credit  transactions-th’at  is 
by  loans.  When  loans  are  paid,  the  process  is  reversed  and  deposits  decline. 

But,  taking  the  shrinkage  as  it  stands,  there  is  another  side  to  the  picture. 
1 he  deposits  of  national  banks  increased  during  the  period  which  I am  reviewing— 
that  is,  from  1914  to  1921,  from  $8,563,000,000  to  $17,866,000  000  Thev 
more  than  doubled  within  this  period.  We  have  no  experience  of  similar  con- 
ditions which  justified  us  either  in  the  hope  or  the  expectation  that  banks  could 
retain  without  reaction  the  whole  of  the  entire  growth  to  such  unexampled 
proportions.  After  the  shrinkage,  to  which  attention  is  called,  the  increase  in 
deposits  from  1914  remained  $5,997,000,000,  and  it  should  be  noted  that  the 
last  report  shows  that  the  deposits  of  all  national  banks  recovered  or  increased 
$830,000,000  from  September  6,  1921  up  to  March  10,  1922.  That  record  too 
is  amazing,  and  it  had  a cause. 


MAGNITUDE  OF  PRESENT-DAY  TRANSACTIONS 

By  means  of  the  mechanism  provided  by  the  Federal  Reserve  Act  and 
built  up  by  the  Federal  Reserve  Board  and  the  Federal  Reserve  Banks,  transfers 
of  funds  and  settlements  of  balances  between  different  sections  of  the  country 
ave  been  effected  in  a single  day,  staggering  in  their  magnitude,  with  such 
ease  and  absence  of  disturbance  as  to  pass  without  public  notice.  The  40 
billions  of  dollars  raised  for  war  was  handled  through  the  Federal  Reserve  ! 
Banks. 

Under  former  banking  practice,  the  transfer  of  a few  million  dollars  ' 
from  one  part  of  the  country  to  another,  through  credit  and  exchange  operations,  ‘ 
would  sometimes  cause  local  stringency  until  the  funds  were  redistributed.  On 
the  other  hand,  by  means  of  the  machinery  of  the  Federal  Reserve  Banks,  the 
Government  has  handled  taxes  from  every  nook  and  corner  of  the  country, 
amounting  at  times  to  about  one  billion  dollars  quarterly;  huge  issues  of  certi- 
ficates  of  indebtedness  have  been  floated,  have  matured  and  been  paid,  and  the  I 
receipts  and  disbursements  of  the  Treasury  on  a single  day,  on  occasion,  have  ‘ 
amounted  to  approximately  a billion  dollars  each  way.  All  of  these  funds  ! 
passed  through  the  Federal  Reserve  Banks ; they  were  adjusted  and  redistributed, 
and  the  Federal  Reserve  Banks  supplied  any  credit  needed  without  disturbance 
of  the  financial  equilibrium  and  as  a routine  matter.  You  have  all  become 
accustomed  to  these  tremendous  transactions,  and  they  now  occasion  no  com- 
ment among  you ; yet  they  would  not  have  been  possible  under  former  methods. 

COURSE  OF  THE  FEDERAL  RESERVE  BANKS  DURING  THE  DECLINE 

OF  PRICES 

Now,  let  us  consider  together,  fairly,  what  were  the  real  facts  relating  to 
the  part  which  the  Federal  Reserve  Banks  played  in  the  credit  system  of  the 
country  during  that  wild  period  of  inflation  after  the  armistice,  with  the  sub- 
sequent and  consequent  deflation,  and  I ask  you  to  ponder  upon  these  facts 
when  you  consider  the  allegations  of  those  who  charged  that  the  Federal  Reserve 


8 


Banks,  by  restricting  or  contracting  credit  and  the  issue  of  currency  brought 
about  those  declines  in  prices  which  have  been  so  disastrous,  temporarily,  at 
least,  to  a part  of  the  people,  because  chiefly  of  the  inequality  in  the  decline  of 
certain  products  and  commodities  in  relation  to  others  and  to  all  the  factors 
which  enter  into  the  cost  of  living. 

You  will  recall  that,  immediately  after  the  armistice,  there  was  a decline 
or  halt  in  the  activity  of  business,  and  an  apprehension  and  even  expectation  of 
further  decline  and  depression  because  of  the  cessation  of  business  created  by 
the  war.  It  was  rather  expected  that  the  inevitable  inflation,  which  had  been 
brought  about  would  start  upon  its  natural  course  of  deflation.  This  rather 
general  expectation  was  reflected  in  actual  hesitation  of  business.  But  the  halt 
was  of  brief  duration,  and  those  who  then  expected  a decline  reckoned  without 
considering  all  the  factors  in  the  case.  No  financial  undertakings  equal  to  those 
of  the  Government  were  ever  assumed  in  a like  period  by  any  government  in 
the  world  at  any  time.  After  the  armistice,  commitments  entered  into  by  the 
Government  had  to  be  fulfilled,  and  the  extent  of  the  commitments  was  not 
known  to  or  appreciated  by  the  general  public.  It  has  been  said  that  we  planned 
for  a five-years’  war. 

We  raised  by  taxes  and  from  sale  of  Government  securities  about  40 
billions  of  dollars,  and  according  to  Assistant  Secretary  Leffingwell,  who  had 
active  charge  of  Treasury  financing  during  that  period,  we  spent  half  of  it — 
20  billions — after  the  armistice.  You  know  we  raised  the  Victory  Loan  after 
the  end  of  the  war.  It  was  these  commitments  and  expenditures  which  were 
chiefly  responsible  for  business  activity  at  the  high  mark,  and  this  business 
activity,  the  cause  of  which  was  not  as  well  understood  as  it  should  have  been, 
incited  the  use  of  further  sums  of  bank  credit  to  supply  what  then  appeared  to 
be  an  insatiate  demand,  due  in  part  to  an  orgy  of  spending  as  a reaction  from  the 
self-denial  of  war  times.  There  you  have  the  whole  picture.  The  Assistant 
Secretary,  on  a certain  occasion,  when  commenting  on  Treasury  activities, 
described  the  situation  and  the  results  so  graphically  that  I will  quote  him 
literally: 

“We  fought  a great  war.  We  are  proud  of  it  and  glad  of  it.  But  from  the 
economic  point  of  view,  it  was  a reckless  debauch,  and  the  people  ought  to  be  told 
that  the  next  time  they  enter  upon  an  economic  debauch,  they  must  pay  the  price, 
and  the  price  will  be  registered  in  inflation.  We  must  not  delude  ourselves,  or  those 
who  rely  upon  us,  with  the  belief  that  the  consequences  of  economic  waste  can  be  avoided 
by  any  amount  of  wisdom  and  ingenuity  in  finance  or  banking.” 

In  this  connection,  in  order  to  show  how  a considerable  proportion  of  the 
money  raised  by  the  Government  was  expended,  in  competition  with  home 
buying,  during  that  period,  to  which  due  weight  is  seldom  given  when  the  course 
of  prices  is  considered,  I will  quote  one  of  the  findings  of  the  recent  Joint  Com- 
mission of  Agricultural  Inquiry: 

“While  exports  had  begun  to  fall  off  in  some  commodities  during  this  period 
(March  19,  1919,  to  June,  1920),  notably  in  war  materials,  and  in  the  latter  part  of  the 
period  in  farm  products,  a balance  of  $2,500,000,000  of  funds  placed  by  the  United  States 
Government  to  the  credit  of  foreign  governments  enabled  Europe  to  complete  payments 
for  goods  under  contract  and  to  continue  its  purchases  in  this  country  for  a period  of 
several  months.  This  purchasing  on  the  part  of  foreign  governments  during  the  period 
undoubtedly  helped  to  sustain  the  prices  of  commodities  in  this  country  during  this 
time.” 


9 


The  balance  of  trade  continued  to  be  in  our  favor,  month  after  month  run- 
ning as  high  as  $700,000,000  in  a month.  $2,500,000,000  is  an  enormous  sum. 
When  this  sustaining  power  was  withdrawn  or  exhausted,  then  began  to  happen 
that  which  no  amount  of  “wisdom  or  ingenuity  in  finance  or  banking”  could 
have  avoided. 

We  could  have  just  such  another  debauch  and  just  such  another  rise  in 
prices  with  a consequent  unequal  distribution  of  wealth,  if  it  were  possible  to 
bring  about  conditions  similar  to  those  which  then  existed,  and  if  we  pursued 
the  same  tactics  in  raising  and  spending  money  and  competing  for  goods  and 
labor;  and  we  could,  in  my  opinion,  look  forward  to  the  same  settlement — 
whatever  banking  policy  it  might  be  practicable  to  adopt.  I agree  with  Mr. 
Leffingwell  that  the  result  could  not  be  avoided  “by  any  amount  of  wisdom  and 
ingenuity  in  financing  or  banking.”  We  dance  and  we  pay  the  piper. 

I think  I am  right  in  saying  that,  undoubtedly,  a very  considerable 
proportion  of  the  public  has  been  led  to  believe,  for  one  reason  or  another,  that 
the  credit  policies  of  the  Federal  Reserve  Banks — and  when  I say  “credit  poli- 
cies,” I mean  alleged  restriction  of  credit  or  contraction  of  credit  and  of  cur- 
rency— were  directly  responsible  for  the  inauguration  of  the  decline  in  prices. 
I have  been  told  that  this  opinion  prevails  to  a considerable  extent  in  North 
Carolina.  The  subject  is  certainly  one  of  great  importance,  and  it  ought  to  be 
settled  for  good.  While  it  is  not  new  to  you  and  has  been  much  discussed,  I 
trust  I may  nevertheless  be  able  to  hold  your  attention. 

Our  member  banks  know  very  well  that  there  has  been  no  lack  of  liberality 
in  providing  credit,  but  since  the  majority  here  do  not  represent  member  banks,  I 
will  give  you  proof  of  what  the  Richmond  bank  did,  as  well  as  of  what  the 
entire  System  did.  Although,  as  I say,  the  truth  has  been  presented  before,  it 
appears  not  to  have  entered  the  eye  of  the  mind  of  some,  so  I am  making  use  of 
certain  charts  to  illustrate  it  to  the  external  senses.  I hope  I do  not  assume 
too  much,  and  that  I may  be  able  to  set  that  phase  of  the  matter  forever  at  rest 
in  the  minds  of  at  least  the  majority  of  you.  There  have  been  so  many  charges 
and  reiterations  and  some  have  so  interpreted  and  used  the  facts  and  the  figures 
to  suit  personal  theory  and  opinion,  which  may,  of  course,  have  been  shared  by 
others,  that  it  is  no  wonder  many  have  been  confused. 

In  considering  the  causes  of  price  decline,  it  is  vital  to  a correct  con- 
clusion to  consider  first  when  prices  began  to  decline.  I have  had  enlarged  a 
chart  published  by  the  Manchester  GUARDIAN,  one  of  the  most  reputable 
and  conservative  journals  of  England,  whose  information,  I think,  we  can 
accept,  which  illustrates  the  beginning  and  the  course  of  the  decline  in  the 
principal  countries  through  the  year  1920,  in  which  the  greatest  decline  occurred, 
and  on  through  1921.  Refer  to  this  chart,  and  mark  well  the  beginning  of  the 
decline,  the  rapidity  of  the  decline,  and  particularly  the  period  of  maximum 
decline  in  this  country,  which  was  from  May  through  December,  1920.  Observe 
that  the  decline  apparently  started  first  in  Japan  in  March,  and  it  was  rapid, 
severe  and  continuous  for  the  period  of  a year.  It  next  extended  to  France 
and  Italy  where  decline  commenced  simultaneously  in  April.  The  decline  in 
France  continued  with  but  little  interruption  till  June,  1921.  The  decline  in 


10 


COPV  OF  CHART  PUBLISHED  BY  MANCHESTER  GuaRD\AN.  ENGLAND 

WORLD  PRICES 


the  United  States  commenced  in  May  and  in  Great  Britain  apparently  in  June, 
and  in  Sweden  and  the  Netherlands  a little  later. 

This  chart  and  the  other  charts  submitted  illustrate  what  everybody 
now  must  admit  to  be  the  fact,  that  the  decline  started  throughout  the  world 
at  a time  when  the  Federal  Reserve  Banks,  notwithstanding  they  were  ad- 
monishing their  members  and  the  public  to  go  cautiously  in  the  use  of  credit, 
and  to  liquidate  unnecessary  loans,  were,  nevertheless,  granting  large  additional 
sums  of  credit  to  their  member  banks;  and  the  issue  of  Federal  Reserve  notes 
was  increasing  at  the  same  time,  and  the  volume  of  both  credit  and  currency 
continued  to  increase  during  the  period  of  maximum  decline  in  this  country. 
Therefore,  those  who  have  charged  that  contraction  of  credit  by  Federal  Reserve 
Banks  (which  did  not  at  that  time  take  place)  was  responsible  for  the  tumble  in 
prices  (which  did  take  place)  must  change  the  nature  of  their  charge  to  give  it 
any  standing  in  court.  The  Federal  Reserve  Banks  were  certainly  not  re- 
sponsible for  starting  the  decline  in  foreign  countries.  Let  us  base  a decision 
upon  the  facts  in  this  case,  and  not  upon  personal  opinion  or  upon  unfounded 
allegations  or  upon  assumptions,  or  upon  dangerous  suppositions  which  have 
been  adopted  by  some  people  with  the  confident  assurance  that,  if  such  ex- 
periments had  been  made,  there  would  not  have  been  any  fall  in  prices,  or  at 
least  not  until  one  set  of  producers  had  exchanged  their  surplus  products  for  the 
surplus  products  of  other  people;  so  that,  by  some  commercial  alchemy,  the  goods 
of  the  world  in  this  country  would  have  been  so  equably  swapped  or  bartered 
or  distributed  that  nobody  would  have  suffered  a loss,  or  that  the  loss  would 
have  been  so  distributed  that  no  one  would  have  felt  it  seriously,  but  all  things 
would  have  come  down  together  or  would  have  adjusted  themselves  to  an 
equitable  level.  That  is  ideal,  but  wholly  impossible  of  realization. 

The  decline  in  discounted  paper  and  Federal  Reserve  notes  followed 
the  decline  in  prices  as  a matter  of  course.  To  say  that  it  preceded  the  decline 
is  not  sustained  by  fact,  and  if  it  did  not  precede,  it  did  not  cause. 

The  charts  indicate  that  the  peak  of  prices  in  this  country  was  reached 
in  the  spring  of  1920,  about  May.  For  just  about  one  year  prior  to  that  time, 
the  amount  of  commercial  and  agricultural  paper  discounted  for  member  banks, 
including  paper  acquired  in  the  shape  of  bank  acceptances,  based  upon  com- 
mercial transactions,  had  been  steadily  increasing  until  the  increase  amounted 
to  $1,120,000,000  up  to  May,  1920. 

As  a matter  of  course,  the  paper  discounted  by  Federal  Reserve  Banks 
covered  by  Government  securities  had  been  decreasing  gradually  as  these 
securities  became  absorbed,  either  by  those  who  subscribed  for  them  or  by  the 
investing  public.  Prices,  from  whatever  cause  or  causes,  began  to  decline,  and 
although  allegations  were  made  that  credit  was  being  restricted  and  contracted, 
the  holdings  of  Federal  Reserve  Banks  of  commercial  and  agricultural  paper 
increased  further  from  May  to  October  29th,  when  it  reached  its  maximum  total 
of  $1,895,000,000,  which  was  more  than  the  reserve  deposits  of  all  member 
banks,  and  an  increase  from  May  to  October  29th  of  $405,000,000.  Neither 
caution  nor  the  discount  rate  stemmed  the  demand  for  credit,  and,  so  far  as  we 
are  aware,  no  bank  that  needed  credit  and  asked  for  it  was  denied  it.  I choose 


11 


the  date  of  October  because  that  is  the  date  when,  according  to  the  weekly 
statements  rendered  by  Federal  Reserve  Banks,  the  holdings  of  commercial 
and  agricultural  paper  were  at  the  top.  Although  it  is  customary  about  that 
time  of  the  year,  that  is,  in  the  fall,  for  some  liquidation  to  take  place  as  a regular 
matter  of  course,  from  then  on  to  December  30th,  the  holdings  of  such  paper  by 
Federal  Reserve  Banks  decreased  only  $62,000,000,  a smaller  amount  than  might 
have  been  expected  from  natural  causes.  Federal  Reserve  notes,  however,  did 
not  reach  their  maximum  circulation  until  December  23d,  and  remained  high 
until  March,  1921. 

The  discounted  paper  of  the  same  nature  held  by  the  Federal  Reserve 
Bank  of  Richmond  followed  the  same  course.  The  total  increase  during  the 
year  1920  up  to  October  29th  was  about  $41,000,000,  and  at  the  close  of  1920, 
the  amount  of  such  paper  was  but  $3,000,000  less.  I ask  you  again  to  bear  in 
mind  that  it  was  during  this  period  of  rising  rediscounts  that  prices  had  their 
most  rapid  and  drastic  decline.  It  is  manifest,  therefore,  that  to  whatever  cause  or 
causes  the  decline  in  prices  during  this  period  may  have  been  due,  it  was  not  due  to  a 
contraction  of  credit  by  Federal  Reserve  Banks  during  the  period,  for  no  such 
contraction  took  place.  The  charges  that  such  contraction  did  take  place  and 
was  the  cause  of  the  decline  in  prices  will  not  stand,  therefore,  and  we  must  look 
to  some  other  cause.  It  would  at  least  have  been  more  logical  to  have  charged 
that  the  decline  started  and  continued  because  credit  was  not  poured  out  still 
more  freely.  But  in  that  way  lay  great  danger.  Has  anybody  forgotten  the 
evil  and  the  unbearable  burden  of  high  prices  generally? 

In  connection  with  the  decline  in  prices  during  this  period,  which  wit- 
nessed an  increase  in  the  rediscount  of  commercial  and  agricultural  paper  by  the 
Federal  Reserve  Banks,  this  fact  also  must  be  taken  into  account,  and,  so  far  as 
I have  observed,  it  has  not  heretofore  received  due  attention.  All  new  credit 
granted  at  the  lower  prices  brought  about  by  the  decline  went  very  much  further 
in  meeting  the  credit  demands.  That  is  to  say,  the  credit,  of  course,  financed 
a much  greater  volume  of  commodities  and  goods.  While  a great  proportion  of 
the  paper  held  by  Federal  Reserve  Banks  based  upon  old  transactions  continued 
to  be  renewed,  it  took  a much  smaller  amount  of  credit  to  finance  new  trans- 
actions. Manifestly,  it  did  not  require  the  same  credit  to  finance  cotton  at 
$50  or  $75  per  bale  which  it  took  at  $150  to  $200  per  bale.  Cotton  and  cotton 
goods  had  almost  their  whole  decline  before  the  close  of  1920.  Therefore  the 
amount  of  increase  in  Federal  Reserve  Bank  credit  during  this  period  was 
relatively,  that  is,  in  comparison  with  a similar  amount  of  credit  issued  against 
goods  at  higher  prices,  much  greater  in  effectiveness  than  it  seemed.  It  went 
further,  of  course. 

DEALINGS  OF  THE  FEDERAL  RESERVE  BANK  OF  RICHMOND  WITH 

ITS  MEMBER  BANKS 

Let  me  describe  the  dealings  of  the  Federal  Reserve  Bank  of  Richmond 
with  its  members.  Reserve  Banks  deal  with  their  member  banks,  as  our  member 
banks  know,  practically  in  the  same  manner  in  which  all  banks  deal  with  their 
customers.  They  discount  paper  or  grant  credit  according  to  the  needs  of  the 


12 


bank  and  according  to  the  condition  of  the  banks  asking  for  credit.  The  Federal 
Reserve  Bank  of  Richmond  advanced  the  maximum  amount  of  credit  for  the 
year  1920  in  September,  $144,000,000.  In  order  to  do  this,  it  was  compelled  to 
borrow  at  times  as  much  as  $30,000,000  from  other  Federal  Reserve  Banks. 
On  October  31st,  it  was  discounting  for  the  borrowing  banks  of  North  Carolina 
229  per  cent,  of  their  basic  line.  Our  member  banks  understand  the  meaning 
of  the  term  “basic  line”  (which  is  a theoretical  term),  but  for  the  information  of 
non-members  and  others  present,  I will  say  that  it  means  the  amount  which  the 
Federal  Reserve  Bank  is  enabled  to  lend  to  any  particular  member  bank  by 
reason  of  the  contribution  of  that  particular  member  bank  to  the  lending  power 
of  the  Federal  Reserve  Bank.  It  is  arrived  at  in  this  way:  35  per  cent.,  being 
the  amount  of  reserve  which  the  Federal  Reserve  Bank  is  required  by  law  to 
carry  against  deposits,  is  deducted  from  the  reserve  deposit  of  the  member 
bank.  After  this  deduction,  the  paid-in  capital  stock  of  the  member  bank  in 
the  Federal  Reserve  Bank  is  added,  and  the  basic  line  is  reckoned  to  be  two  and 
one-half  times  the  sum  obtained. 

LIBERALITY  OF  FEDERAL  RESERVE  BANK  IN  EXTENDING  CREDIT 

I will  illustrate  the  liberality  of  the  Federal  Reserve  Bank  of  Richmond 
in  dealing  with  members  by  a table  of  typical  cases  of  banks  in  North  and  South 
Carolina  and  Virginia. 


A Memorandum  of  the  Amount  of  Credit  Extended  to  Banks  in 
North  Carolina,  South  Carolina  and  Virginia  in  a few 
Typical  Cases  on  a Given  Date — April  28,  1921 

This  memorandum  is  intended  to  show  the  credit  strain  under  which 
these  banks  operated,  due  to  conditions  in  their  localities,  and  the  extraordinary 
assistance  given  them  by  the  Federal  Reserve  Bank,  while  charges  of  “restriction 
of  credit”  were  being  made  by  misinformed  people.  Note  the  proportion  of 
borrowed  money  to  the  deposits  of  the  banks  and  to  the  reserve  deposits  carried 
in  the  Federal  Reserve  Bank. 


Loans 

Borrowings  from 
F.  R.  Bank  Elsewhere 

Deposits 

Reserve 

% 404,000 

$ 172,000 

$ 

15,000 

$ 191,000 

$ 11,837 

3,978,000 

786,000 

205,000 

2,808,000 

271,597 

673,000 

381,000 

97,000 

394,000 

overdrawn 

3,559,000 

660,000 

239,000 

2,302,000 

102,799 

3,685,000 

713,000 

243,000 

2,682,000 

129,986 

1,011,000 

284,000 

15,000 

557,000 

13,153 

867,000 

369,000 

448,000 

17,592 

150,000 

88,000 

16,000 

62,000 

4,482 

775,000 

355,000 

62,000 

447,000 

16,497 

177,000 

69,000 

10,000 

51,000 

overdrawn 

13 


Borrowings  from 


Loans 

F.  R.  Banks 

Elsewhere 

Deposits 

Reserve 

1,868,000 

469,000 

25,000 

1,376,000 

overdrawn 

4,359,000 

1,441,000 

175,000 

3,748,000 

176,731 

1,203,000 

536,000 

20,000 

705,000 

34,233 

10,217,000 

3,573,000 

250,000 

7,166,000 

458,957 

420,378 

170,000 

25,000 

224,000 

7,665 

346,000 

231,000 

35,000 

142,000 

overdrawn 

652,000 

239,000 

15,000 

160,000 

25,086 

153,000 

40,000 

24,000 

66,000 

4,604 

4,513,000 

1,262,000 

670,000 

3,574,000 

179,145 

454,000 

218,000 

25,000 

250,000 

6,557 

756,000 

273,000 

55,000 

372,000 

15,663 

191,000 

74,000 

20,000 

69,000 

3,148 

2,397,000 

802,000 

378,000 

1,955,000 

100,596 

4,074,000 

980,000 

745,000 

3,966,000 

183,207 

420,000 

243,000 

220,000 

20,527 

5,122,000 

906,000 

83,000 

3,241,000 

141,143 

171,000 

94,000 

10,000 

111,000 

4,150 

1,528,000 

527,000 

89,000 

1,109,000 

41,812 

200,000 

63,000 

37,000 

100,000 

3,020 

325,000 

89,000 

87,000 

161,000 

3,330 

701,000 

225,000 

145,000 

322,000 

13,681 

608,000 

270,000 

61,000 

288,000 

12,225 

1,230,000 

386,000 

135,000 

658,000 

6,226 

305,000 

175,000 

5,000 

111,000 

overdrawn 

1,502,000 

409,000 

1,202,000 

overdrawn 

337,000 

160,000 

40,000 

332,000 

overdrawn 

573,000 

194,000 

35,000 

212,000 

16,725 

4,877,000 

1,362,000 

3,366,000 

228,417 

3,662,000 

1,002,000 

2,958,000 

195,328 

16,448,000 

3,234,000 

845,000 

14,217,000 

709,242 

4,428,000 

1,551,000 

3,152,000 

147,783 

4,620,000 

781,000 

325,000 

3,030,000 

overdrawn 

4,946,000 

1,590,000 

519,000 

2,876,000 

45,165 

The  cases  mentioned  are  some  of  the  most  flagrant,  and  they  are  but  an 
example  of  the  spirit  in  which  the  bank  dealt  with  all  of  its  borrowers  at  a time 
when  the  majority  of  all  borrowers  were  borrowing  to  an  excessive  extent,  only 
a little  less  aggravated  than  in  the  examples  given.  This  will  be  manifest  to  you 
in  the  statement  I have  before  made,  that  all  of  the  borrowing  member  banks  in 
North  Carolina  were  borrowing  229  per  cent,  of  their  basic  line,  or  nearly  five 
times  the  amount  of  the  reserve  deposits  which  they  were  maintaining.  The 
loans  of  South  Carolina  members  were  actually  greater  and  relatively  much 
greater.  At  the  end  of  the  year  1920,  the  member  banks  of  North  Carolina 
were  borrowing  $25,000,000  and  the  members  in  South  Carolina  $26,000,000, 
while  the  banks  of  Virginia  were  borrowing  $49,000,000,  the  member  banking 
resources  in  Virginia  being  much  larger  than  in  the  two  Carolinas  combined. 
These  conditions  continued  with  but  little  decrease  during  the  entire  year  1921. 
On  June  30,  1920,  all  the  state  banks  in  North  Carolina  were  borrowing  $29,- 


14 


000,000,  a majority  part  of  which,  of  course,  came  from  the  Federal  Reserve 
System.  On  June  30,  1921,  they  were  borrowing  $32,000,000.  At  one  time 
the  member  banks  of  the  Federal  Reserve  Bank  of  Richmond  were  lending  to 
non-members  in  this  District  about  $35,000,000.  Not  a single  member  bank 
in  this  District  failed  or  suspended  for  lack  of  credit  up  to  1922.  One  member 
bank  only  failed,  and  it  was  burnt  out  and  its  assets  destroyed  in  large  part. 

By  reference  to  the  list  of  typical  banks  to  which  I have  alluded,  you 
will  see  that  a number  of  those  banks  were  borrowing  more  than  their  total 
deposits  at  that  time.  I leave  it  to  you  to  say,  and  I think  you  know,  what 
would  have  happened  if  we  had  not  extended  support  to  this  more  than  liberal 
degree — support  which  would  not  have  been  warranted  to  that  extent  under 
any  ordinary  conditions.  Only  recently  I learned  that  one  member  bank  said 
that  if  the  Federal  Reserve  Bank  had  understood  conditions,  it  would  have  been 
more  liberal  and  altered  its  policy.  Now  that  particular  bank  was  borrowing 
from  the  Reserve  Bank  in  August,  1920  $3,400,000,  and  about  $2,000,000  from 
other  banks  (which  came  from  the  System,  I am  sure).  Its  deposits  at  the  time 
were  somewhat  over  $9,000,000.  By  December  we  had  increased  loans  to  the 
bank  to  about  $4,600,000;  it  had  reduced  its  outside  borrowing  to  about  $300,000. 
The  reserve  deposit  of  the  bank  at  that  time  was  just  a little  more  than  $400,000, 
so  that  it  was  borrowing  about  1 1 times  its  deposit.  What  do  you  suppose  was 
this  banker’s  idea  of  liberality?  I am  quite  sure  we  understood  conditions  better 
than  any  single  bank  did. 

When  we  first  began  to  urge  moderation  and  restraint  in  the  use  of  credit — 
and  liquidation  in  some  cases — a comparatively  small  percentage  of  our  members, 
chiefly  in  the  cities,  were  borrowing  the  greater  part  of  what  we  were  lending. 
That  was  because  of  the  forced  activity  in  manufacturing  centers. 

Later  on  credit  demands  became  heaviest  in  those  parts  of  the  District 
most  intimately  identified  with  agriculture,  and  there  it  was  found  that  many 
banks  had  made  inordinate  and  non-liquid  loans  which  had  nothing  whatever 
to  do  with  agricultural  productions.  And  when  we  admonished  and  cautioned 
member  banks,  it  was  because  we  felt  it  to  be  the  part  of  prudence,  and  necessary 
to  insure  that  the  supply  of  credit  would  go  around.  We  were  justified  by 
developments. 

Having  placed  you  in  possession  of  these  facts,  I am  unable  to  believe 
that  any  banker  here  present  can  or  will  credit  or  countenance  the  charge  of 
restriction  of  credit  or  forced  liquidation  by  the  Federal  Reserve  Bank  of  Rich- 
mond, and  least  of  all  lack  of  liberality  or  lack  of  understanding  of  conditions. 

I have  every  reason  to  know  or  believe  that  similar  motives  and  conditions 
prevailed  with  all  Federal  Reserve  Banks,  and  I am  sure  I am  right  when  I 
say  that  in  dealing  with  members,  policies  in  granting  rediscounts  were  de- 
termined by  Federal  Reserve  Banks  and  not  by  the  Federal  Reserve  Board. 
From  the  beginning  the  Federal  Reserve  Bank  of  Richmond  has  been  represented 
by  directors  of  the  highest  standing  and  ability,  and  they  hold  themselves  re- 
sponsible for  the  policies  of  the  bank.  Both  North  and  South  Carolina  have 
been  fortunate  in  having  directors  of  such  character  and  standing  and  experience, 
and  I am  able  to  say  that  they  have  shown  a jealous  regard  for  the  welfare  of  the 
banks  of  their  states. 


15 


EARLIER  BORROWING  PRACTICE 


To  illustrate  how  great  has  been  the  change  in  the  practice  of  borrowing 
by  banks,  let  us  compare  recent  transactions  of  that  nature  with  similar  trans- 
actions during  the  seven  year  period  immediately  preceding  the  organization  of 
Federal  Reserve  Banks.  During  1907  all  the  national  banks  in  North  Carolina 
never  borrowed  at  a given  time  more  than  $3,500,000,  and  in  South  Carolina 
and  in  Virginia,  it  so  happens,  the  amount  borrowed  at  a given  time  by  the 
national  banks  during  the  same  year  did  not  exceed  that  sum  in  either  state. 
During  1914,  the  first  year  of  the  war,  when  cotton  went  down  to  six  cents,  in 
the  latter  part  of  which  year  Federal  Reserve  Banks  were  established,  the 
maximum  amount  borrowed  by  all  the  national  banks  in  North  Carolina  on  a 
given  date  was  $7,900,000,  and  the  following  year  they  reduced  it  to  $4,200,000, 
and  the  next  succeeding  year  (1916),  they  were  borrowing  only  $1,865,000.  In 
1914  all  the  state  banks  in  North  Carolina  together  borrowed  only  $5,900,000 
on  a given  date,  and  in  1916  they  reduced  that  amount  to  $4,123,000.  From 
1908  to  1913,  inclusive,  the  amount  of  inter-borrowing  by  all  the  national  banks 
of  the  country  on  a given  date  did  not  exceed  $72,000,000,  although  in  1907, 
which  was  a panic  year,  they  borrowed  $100,000,000.  Now  behold  the  change! 
In  1920  they  borrowed  $2,300,000,000,  and  in  addition  were  obligated  for  ac- 
ceptances amounting  to  $400,000,000.  State  bank  members  were  at  the  time 
borrowing  $464,000,000.  At  the  close  of  1921,  the  national  banks  had  reduced 
their  borrowings  to  something  more  than  a billion  dollars,  which  has  since  been 
further  reduced.  Lower  prices  and  wages,  as  well  as  the  curtailment  of  business 
activity,  resulted  in  lessened  demand  for  credit  and  the  paying  off  of  loans. 

The  foregoing  will  illustrate  the  tremendous  change  in  the  practices  of 
the  banks  with  respect  to  working  within  their  own  resources.  The  occasion 
was  extraordinary,  of  course,  and  they  were  called  upon  to  do  this  in  the  case  of 
loans  on  Government  securities.  The  trouble  arose  from  the  fact  that  after 
having  used  their  credit  to  finance  the  Government  in  the  war,  the  banks  then 
demanded  further  credit  from  the  Federal  Reserve  Banks  to  meet  the  irresistible 
demand  from  their  customers  who  saw  the  opportunity  for  profitable  business. 
Prices  were  high  and  ever  going  higher,  and  because  of  the  high  prices  credit 
was  licked  up  as  a sponge  absorbs  water.  Too  great  a strain  was  placed  upon 
even  our  great  gold  reserves,  which  at  the  height  of  the  credit  demand  began  to 
diminish  heavily  through  exports.  It  would,  perhaps  have  been  better  if  the 
banks  had  been  refused  the  credit  in  large  part,  and  to  go  back  still  further  in 
the  chain,  if  the  banks  had  refused  their  customers  until  their  own  credit  position 
had  become  adjusted.  But  that  was  not  in  human  nature.  Each  bank  thought 
its  credit  demands  were  reasonable  and  would  relieve  a situation  or  help  business, 
and  the  sum  total  of  these  demands  among  the  great  body  of  our  independent 
banks  got  out  of  control,  as  it  always  has  done.  It  is  contended  by  many  that 
credit  is  more  fluid  under  the  branch  banking  system  and  better  controlled,  and 
they  are  probably  right. 

The  borrowing  figures  for  all  national  banks  do  not  measure  the  relative 
borrowing  in  proportion  to  resources  which  prevailed  with  a large  number  of 
banks,  particularly  in  the  Fifth  District,  as  illustrated  in  the  table  to  which 


16 


I have  referred.  At  the  height  of  our  loans  to  members,  there  were  more  than 
250  banks  which  were  not  borrowing  from  us,  and  which  could,  of  course,  have 
borrowed  if  they  had  applied,  but  they  managed  their  affairs  to  their  satisfaction 
without  doing  so.  There  have  been  only  three  banks  in  North  Carolina — mem- 
bers from  the  beginning — which  never  borrowed  from  us,  and  none  in  South 
Carolina.  The  total  membership  is  now  628,  of  which  67  are  state  banks. 

THE  CREDIT  POWER  OF  THE  FEDERAL  RESERVE  SYSTEM 

It  is  quite  generally  agreed  that,  because  of  the  reduction  in  reserve  re- 
quirements for  member  banks,  brought  about  by  the  Federal  Reserve  Act,  and 
the  concentration  of  their  reserves  in  the  Reserve  Banks,  and  because  of  other 
provisions  of  the  Act,  gold  is  now  a basis  for  at  least  twice  as  much  credit  as  in 
the  period  before  the  Reserve  System  was  established.  With  reduced  reserve 
requirements,  the  banks  of  the  country  generally  went  to  the  limit  of  credit 
against  their  reserves,  and  then  called  on  the  credit-making  power  of  the  Federal 
Reserve  Banks. 

Taking  into  account  the  fact  that  the  reserve  ratio  of  the  Federal  Reserve 
System  went  down  to  nearly  40  per  cent.,  very  close  to  the  minimum  required 
by  law,  it  is  manifest  that  it  would  have  been  impossible  to  have  developed  the 
volume  of  bank  credit  recently  used  but  for  the  working  of  the  Federal  Reserve 
System.  There  are  some,  among  whom  are  the  most  voluble  critics  of  Federal 
Reserve  policies,  who  appear  to  think  the  decline  in  prices  could  have  been  held 
off  and  probably  prevented  by  the  extension  of  additional  credit  in  large  volume 
by  the  Federal  Reserve  Banks.  At  best  that  can  be  only  an  assumption. 
Whether  such  people  take  into  account,  or  are  aware  of,  the  frightful  danger 
of  such  action,  I doubt.  I am  quite  sure  that  the  balance  of  judgment  is  not  on 
their  side.  Although  people  of  that  mind  may  not  accept  the  economic  doctrine, 
there  comes  a period,  even  in  normal  times,  when  large  addition  to  the  general 
outstanding  volume  of  credit  works  harm  rather  than  benefit  to  the  economic 
situation.  We  had  long  before  passed  that  stage,  and  were  asked  to  cure  the 
bite  of  the  dog  with  his  hair.  Remember  there  was  nowhere  in  the  world  to  go 
for  credit  after  depletion  of  Federal  Reserve  Banks,  and  only  two  alternatives 
would  have  been  left  in  that  event,  which  threatened  to  be  imminent — de- 
preciated or  fiat  money,  both  leading  to  universal  collapse.  There  can  be  no 
doubt  that  maintenance  of  the  financial  strength  and  integrity  of  the  United 
States  saved  the  world  from  general  commercial  ruin,  as  our  armies  helped  save 
our  allies  from  defeat  and  physical  ruin. 

More  than  to  any  other  cause,  it  was  due  to  the  abuse  or  too  liberal 
use  of  credit  that  prices  rose  to  such  an  unexampled  height.  The  conditions 
which  brought  about  the  creation  of  such  a large  volume  of  credit  were  very 
complex  and  difficult  of  control,  if  not  entirely  impossible  of  control.  When 
credit  ceases  to  bring  about  an  increase  in  production  commensurate  with  the 
volume  of  credit,  then  it  begins  to  work  inflation,  manifested  in  prices  of  things. 
When  it  only  furnishes  the  means  to  compete  for  the  same  volume  of  goods,  of 
course,  prices  go  up  and  absorb  the  credit,  and  it  does  not  get  you  anywhere. 


17 


Too  much  credit  always  results  in  overtrading  and  over-extension  of  business 
concerns  generally,  and  also  in  widespread  speculation,  and  always  heretofore 
it  has  culminated  in  a crisis  followed  by  depression.  For  more  than  one  hundred 
years,  periods  of  activity  in  business  and  so-called  prosperity  have  been  suc- 
ceeded by  periods  of  depression,  unrest  and  distress.  Men  have  been  en- 
deavoring in  all  that  time  to  find  the  definite  causes  and  a preventive  of  such 
periods  of  reaction.  There  is  rather  general  agreement  upon  the  one  fact  that 
price  movements  are  the  chief  factor  in  the  development  of  the  ups  and  downs 
of  industrial  activity.  It  is  not  believed  that  these  recurring  periods  of  de- 
pression are  within  our  power  to  eliminate.  They  are  supposed  to  be  due  to 
lack  of  adjustment  in  our  economic  system,  and  the  more  complex  society 
grows  and  the  more  diverse  the  interests  of  our  people  become,  the  more  difficult, 
rather  than  the  less  difficult,  are  they  to  control,  notwithstanding  some  progress 
has  been  made  and  is  being  made  to  mitigate  their  effects. 

THE  GREAT  ACCOMPLISHMENT  OF  THE  FEDERAL  RESERVE 

SYSTEM 

One  great  thing  has  been  accomplished  in  banking  which  we  were  not 
able  to  accomplish  under  our  old  banking  practices  from  the  time  of  the  es- 
tablishment of  the  National  Banking  System;  that  is,  we  have  finally  arrived 
at  a sound  currency  principle  and  currency  practice  and  are  now  able,  through 
the  Federal  Reserve  System,  to  furnish  the  currency  needs  of  our  banks  in 
intrinsically  sound  and  elastic  currency  to  meet  any  demands  which  may  be 
made  upon  the  banks — a currency  which  will  expand  when  it  is  needed  and 
called  for,  and  automatically  seek  retirement  when  the  need  has  passed.  We 
no  longer  have  to  use  reserve  money,  and  thus  automatically  diminish  our 
credit  power,  to  supply  the  need  for  more  currency. 

Another  accomplishment  of  equal  importance  has  been  achieved.  Ade- 
quate credit  at  all  times  for  active  business  has  been  insured  through  the  re- 
discount system.  It  is  not  likely  that  the  demand  will  ever  again  be  made  on 
the  bank-credit  supply  such  as  was  made  during  the  war.  Then  it  was  used 
in  an  improper  manner  and  worked  overtime,  but  it  could  not  be  avoided.  When 
I say  active  business,  I mean  just  that.  There  will  always  be  a limited  supply, 
even  when  a large  supply,  of  mobile  floating  or  liquid  credit,  most  of  which  finds 
its  way  into  the  banks.  It  is  constantly  being  created  and  recreated,  but  the 
surplus  is  just  as  constantly  going  into  fixed  or  permanent  investment.  Do  not 
forget  that  one  of  the  chief  purposes  of  rediscount  operations  is  to  obtain  addi- 
tional currency  when  needed. 

There  will  never  at  any  time  be  a sufficient  supply  of  bank  credit  to 
justify  an  attempt  to  hold  the  great  crops  of  the  country  in  bulk  off  the  market 
for  a predetermined  price  or  for  an  indefinite  time.  By  that  very  fact  business 
would  be  held  up,  and  bankers  should  oppose  the  passage  of  any  laws  which  will 
tend  to  absorb  bank  reserves  for  that  purpose  or  in  long-time  credits  or  non- 
liquid paper.  If  any  such  attempt  is  ever  made,  it  should  be  with  investment 
capital. 


18 


Bank  and  commercial  credit  from  its  very  nature  should  be  kept  moving. 
It  is  when  it  becomes  “tied  up”  that  stringency  ensues,  and  the  rate  for  its  use 
goes  up.  Many  who  then  require  it  find  that  somebody  has  been  before  them, 
and  that  the  credit  is  being  retained  longer  than  the  holders  have  a right  to  it, 
and  they  cannot  turn  it  loose.  In  consequence  business  is  checked.  There  are 
few  bankers  here  present  who  cannot  illustrate  this  by  their  own  experience. 
The  same  effect  is  produced  in  the  case  of  any  particular  bank  when  too  much 
credit  is  extended  to  one  person  or  set  of  persons;  either  other  customers  then 
have  to  go  without  or  the  bank  is  driven  to  borrow  inordinately  to  supply  them, 
which  is  the  reverse  of  sound  management.  There  is  no  safer  or  sounder  maxim 
to  follow,  whether  in  the  case  of  the  individual  or  the  bank  and  whether  in 
business  or  speculation,  than  “Never  overtrade.”  When  banks  begin  to  borrow 
from  Federal  Reserve  Banks,  they  begin  to  use  up  their  reserves,  and  the  discount 
rate  should  always  be  sensitive  to  such  demands  and  exercise  control  over  them. 

It  is  one  of  the  most  remarkable  events  in  banking  history  that  during 
the  trial  and  stress  through  which  our  banks  went,  and  with  all  the  talk  of 
stringency  of  credit,  or  “tight  money,”  notwithstanding  enormous*  inflation  of 
credit,  no  question  was  raised  about  the  currency  and  no  panic  developed,  and 
if  there  was  any  alarm  among  bank  depositors  anywhere,  it  was  not  due  to  fear 
that  they  might  not  be  able  to  secure  payments  of  their  deposits  in  money.  Yet, 
there  was  more  to  cause  such  disturbance  than  at  any  previous  period  in  modern 
times;  that  is,  the  upheaval  and  disruption  of  business  and  society  the  world 
over  gave  far  greater  reason  for  disturbance. 

CONTRACTION  OF  CURRENCY 

There  are  some  critics  of  Federal  Reserve  Bank  policies  who  accuse  the 
banks  of  deliberate  contraction  of  currency.  A recent  communication  to  a 
newspaper  in  a near-by  state  illustrates  this  class  of  critics.  The  author  quotes  a 
remark  credited  to  President  Lincoln,  as  follows: 

“If  a government  contracted  a debt  with  a certain  amount  of  money  in  circulation 
and  then  contracted  the  volume  of  money  before  the  debt  was  paid,  it  is  the  most 
heinous  crime  a government  could  commit  against  the  people.” 

Very  fortunately  indeed  for  this  country  and  fortunately  for  the  world,  our 
Government  did  not  attempt  to  finance  any  of  the  expenses  of  the  war  by  the 
issue  of  currency.  So  there  is  no  application.  Yet  some  would  be  misled  into 
thinking  so  by  this.  The  same  critic  goes  on  to  quote : 

“Place  the  money  power  in  the  hands  of  a combination  of  a few  individuals, 
and  they  by  expanding  or  contracting  the  currency  may  raise  or  sink  prices  at  pleasure; 
and  by  purchasing  when  at  the  greatest  elevation  may  command  the  whole  property 
and  industry  of  the  community  and  control  its  fiscal  operations.” 

That  was  quoted  as  from  John  C.  Calhoun.  Now  what  is  the  implication  here? 
and  where  is  the  application?  It  does  not  apply  to  any  condition  which  has 
existed  in  the  Federal  Reserve  System  and  it  is  therefore  misleading. 

The  Federal  Reserve  Board  has  the  right  of  refusal  to  issue  Federal 
Reserve  notes  in  its  discretion  under  the  law.  It  has  never  exercised  such 
discretion,  and  so  has  never  refused  to  authorize  the  issue  of  Federal  Reserve 


19 


notes  when  applied  for  by  Federal  Reserve  Banks.  There  was  all  the  currency 
which  business  called  for  or  could  use,  although  many  may  have  wanted  credit 
which  they  could  not  obtain. 

There  has  been  no  failure  to  furnish  Federal  Reserve  notes  to  member 
banks  when  applied  for,  and  failure  to  furnish  could  only  arise  out  of  failure  to 
discount  for  member  banks,  and  rediscounts  were  not  contracted  but  increased 
during  the  most  fateful  period,  as  I have  shown,  and  Federal  Reserve  notes  were 
paid  out  and  increased  in  volume.  It  is  an  advantage  to  Federal  Reserve  Banks 
to  pay  out  Federal  Reserve  notes  (when  they  can)  when  their  members  draw 
against  their  reserve  deposits,  because  such  payments  conserve  the  lending 
power  of  the  Federal  Reserve  Banks. 

As  proven  by  the  facts  hereinbefore  presented  to  you,  during  the  period  of 
the  most  drastic  decline  in  prices,  the  Federal  Reserve  Banks  continued  to 
discount  paper  for  their  member  banks  in  increasing  volume,  and  continued  to 
issue  Federal  Reserve  notes  in  increasing  volume.  It  was  only  after  prices  had 
continued  their  decline  for  a protracted  period  that  finally  the  volume  of  currency 
and  Federal  Reserve  bank  credit  began  to  decline.  Federal  Reserve  Banks  do 
not  call  in  their  currency.  It  is  deposited  by  the  people  in  the  banks,  and 
whenthere  is  no  need  for  it,  it  is  forward  by  the  banks  to  Federal  Reserve  Banks 
for  (credit  and  redemption. 

As  pointed  out,  the  major  part  of  the  decline  in  prices  in  this  country 
happened  prior  to  January  1,  1921.  There  after,  prices  continued  to  decline  in 
many  things,  but  not  in  the  same  ratio  or  to  the  same  extent,  and  after  that  date, 
partly  as  a result  of  the  decline  in  prices  and  liquidation  of  many  business  trans- 
actions, rediscounted  paper  and  Federal  Reserve  notes  both  declined  in  volume. 
And  here,  as  I have  endeavored  to  illustrate,  must  be  taken  into  account  the 
working  of  the  law  of  proportion  or  the  law  of  compensation,  or  any  other  law 
you  may  choose  to  call  it,  to  this  effect:  working  under  reduced  prices,  it  is  mani- 
fest to  any  mind  that  the  same  volume  of  credit  is  not  needed  for  the  current 
transactions  as  was  needed  or  would  have  been  needed  when  prices  were  50 
or  100  per  cent,  or  any  other  per  cent,  higher,  and  any  given  outstanding  volume  of 
credit  is  now  equivalent  in  effectiveness  to  a very  much  larger  sum  under  former 
conditions.  The  same  causes  which  started  the  price  decline  operated  to  con- 
tinue the  decline.  When  the  war  purchases  of  the  governments  of  the  world 
ceased,  and  when  the  money  or  credit  raised  to  discharge  the  obligations  entered 
into  was  exhausted  or  spent,  there  was  not  sufficient  demand  for  our  goods  by 
those  who  could  pay  for  them.  We  had  stopped  putting  up  the  money  for  others 
to  buy.  If  we  had  been  able  to  continue  to  give  credit  to  all  the  rest  of  the  world 
to  buy  from  us,  then  no  doubt  prices  would  have  been  kept  up  longer,  but  those 
who  furnished  the  credit  could  not  have  kept  it  up  very  long,  for  they  would 
have  “gone  broke,”  because  they  would  not  have  been  paid,  as  we  know.  (As 
a matter  of  fact,  foreign  countries  became  indebted  to  us  on  current  account  for 
a sum  estimated  between  three  and  four  billions).  There  was  no  way  for  such 
people  to  pay  except  in  part  with  goods,  which  we  did  not  want. 

As  to  what  started  deflation  or  who  started  deflation,  the  question  has 
been  solved  by  one  of  your  North  Carolina  newspapers,  which  stated  in  a recent 
editorial  that,  as  a matter  of  fact — 


20 


“Henry  Ford  was  the  man  who  introduced  a turnover  from  the  artificial  prosperity 
that  the  country  was  enjoying  after  the  war.  It  was  in  September,  1920,  that  Mr. 
Ford  announced  a drastic  reduction  in  the  price  of  his  cars  and  startled  the  whole 
business  and  and  manufacturing  world.  * * * He  made  the  others  break  their 

prices,  and  the  result  was  that  all  over  the  United  States  and  throughout  every  line  of 
trade  and  industry,  deflation  set  in  with  its  consequent  depression,  a condition  which 
the  country  is  only  now  beginning  to  show  capacity  to  overcome.” 

I am  glad  to  have  the  responsibility  transferred  to  Mr.  Ford’s  shoulders. 


DECISION  IN  THE  PAR  COLLECTION  CASE 

Recently,  we  had  a contest  with  a considerable  number  of  North  Carolina 
non-member  banks  in  the  courts,  to  test  the  constitutionality  of  your  recently 
passed  statute  against  par  collections  by  Federal  Reserve  Banks. 

I am  very  glad  to  be  able  to  recall  that  such  amicable  feeling  existed 
between  the  legal  representatives  of  the  Federal  Reserve  Bank  and  those  of  the 
non-member  banks  that  somebody  said  “the  fellowship  was  so  good  that  he 
couldn’t  tell  one  side  from  t’other.”  The  attorneys  for  the  other  side  have 
advised  the  non-member  banks  that  the  decision  of  the  court  was  a sweeping 
one  for  them.  That  may  be,  and,  yet,  I venture  to  say,  the  result  may  not  be  to 
their  ultimate  advantage.  There  is  one  outcome  of  this  court  decision  which 
the  Federal  Reserve  Bank  welcomed  and  which  is  highly  gratifying  to  it.  That 
outcome  is  expressed  in  paragraph  10  of  the  “Findings  of  Fact”  by  the  court,  to 
the  following  effect: 

Paragraph  10:  “That  the  checks  drawn  on  the  * * * * * 

and  such  other  of  the  plaintiff  banks  as  appear  from  the  evidence  herein,  which  were 
sent  to  the  defendant  for  collection,  were  as  expeditiously  as  possible  under  all  the 
circumstances  given  or  sent  by  the  defendant  to  its  collectors,  and  were  by  such  col- 
lectors presented  to  the  several  banks  upon  which  they  were  drawn  without  unnecessary 
or  unreasonable  delay,  and  without  permitting  such  checks  to  accumulate  in  the  hands 
of  the  defendant,  and  there  was  no  saving  up  of  checks  drawn  on  the  plaintiffs  or  either 
of  them  by  the  defendant.” 

Also  paragraph  23  of  the  “Findings”:  “That  the  acts  and  things  done  by 
the  defendant  as  shown  herein  were  done  and  performed  solely  with  the  object  and  with 
the  intent  to  discharge  what  the  defendant  was  advised  and  believed  to  be  its  legal 
duties  and  obligations  under  the  Act  of  Congress,  and  the  said  defendant  was  not 
actuated  by  any  motive  or  purpose  to  cause  any  unnecessary  injury  or  loss  to  the  plaintiff 
banks,  or  any  of  them.” 

That  clears  the  skirts  of  the  Federal  Reserve  Bank  of  any  contamination 
by  reason  of  the  flinging  of  accusations  that  the  bank  used  coercive  methods 
and  other  improper  methods  to  further  the  collection  plan. 

In  the  conclusions  of  law  arrived  at  by  the  judge,  the  whole  substance,  I 
think,  is  contained  in  the  first  paragraph : 

“1.  The  act  of  the  Legislature  of  North  Carolina  of  February  5,  1921,  is  a valid 
and  constitutional  law.” 

We  have,  of  course,  appealed  from  that  conclusion. 

Paragraph  4 of  the  decree  of  the  judge  reads  as  follows: 

“4.  The  said  defendant  is  likewise  enjoined  from  publishing  or  authorizing 
the  publication  of  the  name  of  any  of  the  plaintiff  banks,  literally  or  by  inclusion,  in 
any  list  or  other  publication  designed  for  circulation  among  banking  institutions  gener- 
ally, regardless  of  the  name  employed  to  designate  such  list  for  publication  unless  or 
until  the  bank  thus  published  or  included  shall  have  previously  given  its  consent  to 
such  publication.” 


21 


The  judge  has  advised  our  counsel  in  an  exchange  of  correspondence  that 
he  did  not  mean  by  that  paragraph  in  the  decree  to  deny  the  right  or  the  privilege 
of  the  Federal  Reserve  Banks  to  publish  (for  the  guidance  of  members  and  their 
customers)  a list  of  the  names  of  those  non-member  banks  included  in  the  in- 
junction against  the  Federal  Reserve  Bank,  upon  which  the  bank  does  not  receive 
checks. 

The  judge  stated  that  his  meaning  was  that  the  Federal  Reserve  Bank 
must  not  publish  the  name  of  any  non-member  North  Carolina  bank  on  the  par 
list  as  a bank  upon  which  it  would  undertake  to  collect  at  par  without  the  consent 
of  such  non-member  bank. 

There  is  one  fact  that  I should  like  to  present  to  those  non-member  banks 
in  North  Carolina  and  elsewhere  which  are  refusing  to  join  in  the  par  collection 
system  of  the  country,  which  now  embraces  banks  having  about  98  per  cent,  of 
all  the  banking  resources  of  the  country.  We  firmly  believe  that  the  par  col- 
lection system  is  to  the  interest  of  the  public  and  that  the  public  so  regards  it, 
and  that  being  to  the  interest  of  the  public,  it  must  of  necessity  be  to  the  ultimate 
interest  of  the  banks.  I do  not  mean  to  deny  that  some  small  banks  may  not 
find  it  difficult  to  earn  a living  income  from  the  lending  of  money  gathered  in 
from  the  surrounding  community,  thus  putting  idle  capital  to  work,  which  is 
the  primary  function  of  a bank  and  which  constitutes  99  per  cent,  of  the  useful- 
ness of  a bank  to  the  public,  or  that  some  of  them  under  previous  conditions 
and  practice  cannot  do  business  if  they  cannot  make  an  exchange  charge  when 
remitting  for  their  customers’  checks.  I do  mean  to  state  the  conviction, 
however,  that  a par  collection  system  is  to  the  ultimate  interest  of  all  banks. 

For  your  thoughtful  consideration,  I will  present  to  you  the  result  of  a 
study  we  have  been  making  of  the  course  of  deposits  in  the  non-par  banks 
as  compared  with  the  course  of  deposits  in  those  non-member  banks  which  are 
remitting  at  par.  I do  not  undertake  to  say,  of  course,  that  the  figures  that 
I present  are  more  than  a coincidence,  but  when  you  take  a large  number  of 
coincidences,  say,  227  of  them,  that  being  the  number  of  non-par  banks  in  North 
Carolina,  and  compare  them  with  208  other  coincidences,  that  being  the  number 
of  non-member  banks  in  North  Carolina  which  (although  being  non-members), 
nevertheless,  remit  at  par,  then,  at  least,  the  comparison  is  entitled  to  some 
thoughtful  consideration,  and  that  is  all  that  I mean  to  ask  and  all  that  I mean 
to  say.  The  decline  in  the  deposits  of  227  non-member  banks  in  North  Carolina 
which  did  not  remit  at  par  from  February  28,  1920,  to  June  30,  1921,  was  36.04 
per  cent.,  while  the  decline  in  the  deposits  of  208  non-member  banks  which 
remitted  at  par  for  the  same  period  was  only  26.89  per  cent.  The  decline  in 
the  deposits  of  102  national  bank  and  state  bank  members  during  the  same 
period  was  only  25.5  per  cent.  This  may  indicate  (I  don’t  say  that  it  does 
positively,  since  it  may  have  been  due  to  special  causes,  but  I ask  you  in  your 
own  interest  to  consider  whether  it  does  indicate)  that  depositors  prefer  to 
deal,  or  that  a greater  percentage  of  depositors  prefer  to  deal,  with  those  banks 
which  pay  their  checks  at  par  without  the  deduction  of  exchange. 

A final  word  upon  the  nature  and  causes  of  our  depression,  from  which 
you  have  emerged  to  some  extent  and  from  which  I hope  and  believe  in  due 
time  you  will  emerge  upon  a higher  plane  of  power  and  usefulness;  for  the  fact 


22 


confronts  you  that  the  banks  of  North  Carolina,  state  and  national,  have  grown 
to  an  unparalleled  extent  under  the  protection  of  the  Federal  Reserve  System, 
and  when  their  loans  to  their  customers  become  more  satisfactorily  adjusted  and 
more  liquid,  they  will  be  in  a stronger  position  and  more  useful  than  they  have 
ever  been  in  the  life  of  the  State. 

We  know,  of  course,  the  loss  and  distress  which  has  been  brought  upon  a 
multitude  of  individuals,  chiefly  upon  those  engaged  in  agriculture,  who  need 
aid  of  several  kinds.  On  the  other  hand,  I believe  that  no  man  will  undertake 
to  deny  that  the  State  as  a whole  has  advanced  in  real  wealth  far  beyond  that 
possessed  prior  to  1914,  and  that  it  has  the  machinery,  both  of  banking  and  of 
commerce  and  manufacture,  to  quickly  advance  to  far  greater  heights  of  pros- 
perity and  far  greater  attainment  of  wealth  for  the  people  as  a whole  than  has 
ever  yet  been  realized.  Whether  this  depression  could  have  been  avoided  or 
not — and  I am  one  of  those  who  believe  it  was  inevitable,  as  I believe  future 
depressions  as  a result  of  excesses  whenever  committed  will  be  bound  to  occur — 
let  us  consider  the  utterance  of  one  of  the  world’s  foremost  statemen  or  politi- 
cians, and  certainly  one  of  the  best  minds  in  public  life  in  the  world  today — the 
utterance  of  Mr.  Lloyd  George  in  his  recent  speech  before  the  Genoa  Conference: 

“The  conference  has  been  called  to  consider  the  problem  of  reconstruction  of 
economic  Europe,  devasted,  broken  into  fragments  by  the  devasting  agencies  of  war. 
Europe — the  richest  of  all  continents,  the  continent  which  possesses  the  largest  amount 
of  accumulated  wealth  and  certainly  the  greatest  machinery  for  production  of  wealth 
and  the  largest  aggregate  of  human  means,  with  highly  civilized  needs  and  with  highly 
civilized  means  of  supplying  those  needs,  and  therefore  Europe  is  the  best  customer 
in  the  world  and  of  the  world — has  been  impoverished  by  the  greatest  destruction  of 
capital  that  the  world  has  ever  witnessed. 

“If  the  European  countries  had  gathered  together  their  mobile  wealth  in  one 
pymarid  and  set  it  on  fire  the  result  could  hardly  have  been  more  complete  as  far  as 
the  capital  wealth  of  Europe  is  concerned.  International  trade  has  been  disorganized 
through  and  through;  the  recognized  medium  of  commerce,  exchange  based  on  currency, 
has  become  almost  unworkable,  and  vast  areas  upon  which  Europe  had  hitherto  depended 
for  a large  proportion  of  its  food  supplies  and  its  raw  materials  are  completely  destroyed 
for  all  purposes  of  commerce.” 

Let  me  ask  you  in  all  candor:  with  these  great  and  terrible  facts  long 
known  and  still  confronting  the  world,  of  which  no  man  can  plead  ignorance — 
with  these  causes  too  powerful  and  inexorable  to  be  stayed  in  their  operation,  is 
it  not  futile  in  the  delirium  of  distress  to  imagine  that  we  could  escape  the 
penalty,  or  the  consequences,  or  that  any  economic  or  banking  policy  possibly 
of  adoption  could  do  more  than  alleviate  the  distress,  as  has  been  done,  or  that 
there  is  any  remedy  or  hope  of  recovery  except  in  the  course  of  time?  We 
cannot  eat  and  have,  as  we  tried  to  do. 

All  men  will  never  agree  together  upon  any  great  matter — finance, 
politics,  religion,  economics  or  what  not;  else  there  would  have  been  no  war. 
And  if  one  thing  happen  as  the  result  of  any  course,  there  will  always  be  some 
who  will  say  that  another  course  might  have  been  taken  and  another  thing  would 
have  happened,  and  the  other  thing  might  have  been  still  more  terrible.  Who 
can  see  the  end  from  the  beginning? 

You  bankers  may  hearten  yourselves  with  these  facts:  Notwithstanding 
what  you  have  passed  through,  your  banks  as  a whole  emerged  with  greater 
resources  and  more  powerful  than  you  would  have  dared  to  dream  of  seven 


23 


years  ago.  It  is  so  with  the  country-at-large.  The  industries  of  your  State 
have  added  to  her  wealth  in  that  period,  and  you  have  the  equipment  to  create 
greater  wealth  and  prosperity,  such  as  you  had  no  right  to  hope  to  have  within 
so  short  a time.  It  is  so  with  the  country-at-large.  We  have  added  something 
of  value  to  our  experience,  but  let  us  not  forget  the  teachings  of  adversity. 


24 


GRAPHIC  CHARTS 
AND 

TABLES  OF  INFORMATION 


REFERRED  TO  IN  THE  ADDRESS 


25 


EXPLANATION  OF  GRAPHIC  CHARTS  REFERRED  TO  IN 

THE  ADDRESS 

The  first  four  of  these  graphic  charts  show  the  trend  of  the  average 
monthly  wholesale  prices  of  Corn,  No.  3,  Chicago;  Wheat,  No.  2,  red  winter, 
Chicago;  Cotton  yarns,  northern  cones,  10-1  Boston;  Cotton,  middling,  New 
Orleans;  Sugar,  granulated,  New  York;  Hogs,  light,  Chicago;  Hides,  packers, 
heavy  native  steers,  Chicago;  Cattle,  steers,  good  to  choice,  Chicago  and  the 
trend  of  Federal  Reserve  Note  Circulation  and  the  holdings  of  Government 
Secured  paper  and  All  Other  Paper  (including  Bankers’  Acceptances)  and  Cir- 
culation and  Paper  Combined,  for  the  Federal  Reserve  System  and  for  the 
Federal  Reserve  Bank  of  Richmond. 

The  figures,  in  all  instances,  have  been  reduced  to  the  same  basis,  the 
January,  1920,  figure  being  represented  by  the  index  figure  100.  Subsequent 
increases  or  decreases  are  represented  by  an  upward  or  downward  curve.  The 
extent  of  the  increase  or  decrease  is  gauged  by  the  figures  at  either  margin.  A 
curve  touching  the  heavy  line  marked  140  would  represent  an  increase  of  40% 
over  the  January  figure;  one  touching  the  heavy  line  marked  30  would  represent 
a decrease  of  70%  as  compared  with  the  January  figure. 

Chart  No.  1 shows  the  course  of  the  average  monthly  wholesale  prices  of 
Corn,  Wheat,  Cotton  yarns,  and  Cotton. 

Chart  No.  2 shows  the  course  of  the  average  monthly  wholesale  prices  of 
Sugar,  Hogs,  Hides,  and  Cattle. 

Chart  No.  3 shows  the  course  of  Federal  Reserve  Note  Circulation,  Gov- 
ernment Secured  Paper,  All  Other  Paper  (including  Bankers’  Acceptances)  and 
Circulation  and  Paper  Combined  for  the  Federal  Reserve  System. 

Chart  No.  4 shows  the  course  of  Federal  Reserve  Note  Circulation, 
Government  Secured  Paper,  All  Other  Paper  (including  Bankers’  Acceptances) 
and  Circulation  and  Paper  Combined  for  the  Federal  Reserve  Bank  of  Richmond. 

The  figures  for  charts  Nos.  1 and  2 were  taken  from  the  Federal  Reserve 
Bulletin;  those  for  chart  No.  3 from  the  Federal  Reserve  Board’s  weekly  pub- 
lished statement  nearest  the  15th  of  each  month,  and  those  of  chart  No.  4 from 
our  statements  of  the  same  dates. 

The  curve  of  Chart  No.  4 showing  Government  Secured  Paper, 
includes  that  paper  under  re-discount  with  other  Federal  Reserve  Banks  as  well 
as  that  actually  held  by  this  Bank. 

All  these  figures,  average  monthly  wholesale  prices,  Federal  Reserve 
Note  Circulation,  Holdings  of  Paper,  and  Circulation  and  Holdings  Combined, 
have  been  reduced  to  the  same  basis — that  of  percentage,  January,  1920,  being 
taken  as  100%  or  “Par,”  and  subsequent  increases  or  decreases  calculated  from 
this  (January,  1920)  basis. 


26 


27 


NO  I. 


28 


N°2 


29 


N°3  ALL  FEDERAL  RESERVE  PAMK5 


N°4  FEDERAL  RESERVE  BANK  of  RICHMOND. 


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32 


TABLES  OF  INFORMATION  REFERRED  TO  IN  THE  ADDRESS 


We  frequently  hear  the  inquiry,  ‘What  has  become  of  all  the  money?” 
This  inquiry  generally  arises  from  current  talk  and  newspaper  comment  about 
“tight  money,”  which  usually  means  in  these  times,  as  bankers  know,  quite  a 
different  thing  from  lack  of  currency,  or  real  money,  which  is  supposed  to  be 
meant  by  a large  part  of  the  public. 

Nevertheless,  a considerable  portion  of  the  otherwise  well-informed 
public  is  misled  or  confused  whenever  periods  of  credit  stringency  come  around, 
and  banks  are  not  able  to  lend  “credit”  freely  to  everybody  who  asks  for  it  but 
does  not  always  need  it. 

For  the  information,  or  perhaps  for  the  ready  reference,  of  those  who 
wish  to  know  what  happened  to  our  money  or  circulating  currency  supply 
during  the  recent  extraordinary  period,  I append  a table  showing  the  variation 
in  both  the  general  stock  of  money  in  the  country  and  the  amount  in  circulation 
on  December  1,  1920,  when  both  were  at  the  maximum,  and  on  March  1,  1922, 
after  the  period  of  “deflation.”  Between  these  periods  there  was  a decrease  of 
only  $205,000,000  in  the  general  stock  and  $875,000,000  in  the  circulation. 

The  general  stock  of  money  means  the  total  supply  of  gold,  silver  and  all 
forms  of  currency  in  the  country,  in  the  hands  of  the  Government,  the  banks  and 
the  people. 

The  “circulation”  at  any  given  time,  is  determined  by  deducting  from  the 
general  stock  the  amount  held  in  the  Treasury  as  assets  of  the  Government,  and 
the  amount  held  by  Federal  Reserve  Banks  or  Federal  Reserve  Agents  against 
issues  of  Federal  Reserve  notes. 

To  illustrate:  Gold  certificates  are  issued  by  the  Government  against  gold 
coin  and  bullion  held.  Of  course,  the  gold  coin  and  the  gold  certificates  issued 
against  them  are  not  both  counted  either  in  the  general  stock  or  the  circulation. 
So  gold  held  by  Federal  Reserve  Banks  or  Agents  and  Federal  Reserve  notes 
issued  against  them  are  not  both  counted  in  the  circulation;  one  represents  the 
other,  and  only  one  is  therefore  counted. 

Federal  Reserve  Banks  are  permitted  by  law  to  issue  Federal  Reserve 
notes,  with  a minimum  of  40%  of  gold  reserve  held  against  them.  So  the 
amount  of  Federal  Reserve  notes  circulating  at  a given  time  may  be  much  greater 
than  the  amount  of  gold  held  by  the  Federal  Reserve  Banks  and  Agents.  But  to 
arrive  at  the  net  circulation,  the  amount  of  the  gold  held  by  the  Federal  Reserve 
Banks  and  Agents  against  the  notes  is,  of  course,  deducted  from  the  total.  At 
At  the  present  time,  there  is  just  about  one  dollar  of  gold  behind  every  dollar  of 
Federal  Reserve  notes  after  setting  aside  the  35%  reserve  required  by  law  against 
deposits. 


33 


COMPOSITION  OF  GENERAL  STOCK  OF  MONEY  AND  MONEY  IN 

CIRCULATION. 

(Money  in  circulation  is  determined  by  deducting  from  the  General  Stock  the  amount 
held  in  the  Treasury  as  assets  of  the  Government  and  the  amount  held  by  F.  R. 
Banks  or  F.  R.  Agents  against  issues  of  Federal  Reserve  notes.) 


. 

General  Stock  of 
Money  in  U.  S. 

Held  in  Treas- 
ury as  Assets 
Government. 

Held  by  F.  R. 
Bks.  and  F.  R. 
Agts.  against 
Issues  F.  R. 
Notes. 

Money  in  Cir- 
culation. 

DECEMBER  1,  1920 

Gold  coin  and  bul- 
lion   

Gold  Certificates.. 
Standard  Silver 

Dollars  

Silver  Certificates. 
Subsidiary  Silver. 
Treasury  Notes  of 
1890 

$2,761,338,519 

$430,386,732  a$ 

898,841,309 

201,018,280 

b$  879,529,142 
351,563,056 

97,095,305 

155,289,410 

262,917,134 

1,615,362 

339,718,602 

3,319,415,118 

269,857,494 

15,857,417 

266,609,065 

3,691,931 

United  States 
Notes 

346,681,016 
c3, 663, 592, 795 

6,962,414 

18,203,857 

Federal  Reserve 

Notes  

325,973,820 

Federal  Reserve 

Bank  Notes....  239,569,800 
National  Bank 

Notes  734,010,797 


4,094,172 

13,130,555 


235,475,628 

720,880,242 


Total $8,281,659,486  $492,327,078  $1,425,833,409  $6,363,498,999 

a Includes  $822,903,893  credited  to  F.  R.  Agents  in  the  Gold  Settlement  fund  deposited  with  Treasurer 
of  the  United  States. 

b Includes  $403,542,320.39  credited  to  F.  R.  Banks  in  Gold  Settlement  fund  deposited  with  Treasurer 
of  the  United  States. 

c Includes  own  F.  R.  notes  held  by  F.  R.  Banks. 


MARCH  1,  1922. 


360,401,851 

272,380,601 


Gold  coin  and  bul- 
lion   

Gold  Certificates.. 

Standard  Silver 

Dollars  

Silver  Certificates. 

Subsidiary  Silver. 

Treasury  Notes  of 

1890  

United  States 

Notes  346,681,016 

Federal  Reserve 

Notes  d2, 518, 443, 360 

Federal  Reserve 

Bank  Notes....  105,525,400 
National  Bank 

Notes  752,035,482 


720,755,655  $369,444,572  b$l, 602, 100, 023  C$1,056,861,301 

266,103,280  426,246,479 


5,930,528 

17,571,082 

3,900,196 

3,067,442 

1,351,259 

16,130,055 


301,862,170 


67,987,131 

284,950,223 

254,809,519 

1,533,969 

342,780,820 

2,213,513,748 

104,174,141 

735,905,427 


Total $8,076,223,365  $417,395,134  $2,170,065,473  $5,488,762,758 

b Includes  $1,524,190,760  credited  F.  R.  Agents  in  Gold  fund  deposited  with  Treasurer  of  the  United 
States. 

c Includes  $504,072,205.86  credited  to  F.  R.  Banks  in  Gold  fund  deposited  with  Treasurer  of  the 
United  States. 

d Includes  own  F.  R.  notes  held  by  F.  R.  Banks. 

NOTE:  It  is  to  be  taken  into  account  that  money  in  circulation  includes  money 

in  the  possession  of  the  banks  of  the  country. 

(Continued  on  next  page) 

34 


ANALYSIS— NET  DECREASE  IN  GENERAL  STOCK. 

It  will  be  observed  that  the  General  Stock  of  Money  on  March  1,  1922,  is  only 
$205*000,000  less  than  on  December  1,  1920,  accounted  for  as  follows: 

Decrease.  Increase. 


F.  R.  Notes $1,145,000,000 

F.  R.  Bank  Notes  (Is  and 

2s  chiefly)  134,000,000 


$1,279,000,000  $1,074,000,000 

Net  Decrease  205,000,000 


Gold  $ 959,000,000 

Silver  Dollars 91,000,000 

Subsidiary  Silver 6,000,000 

National  Bank  Notes.  . . 18,000,000 


Decrease  in  Circulation. 

The  net  decrease  in  circulating  money  between  the  periods  given  was  $875,- 
000,000,  accounted  for  as  follows: 

Decrease.  Increase. 


F.  R.  Notes 

F.  R.  Bank  Notes 


$1,106,000,000  Gold  $ 253,000,000 

. 131,000,000  All  other  (net) 109,000,000 


$1,237,000,000  $ 362,000,000 

Net  Decrease  875,000,000 


35 


GENERAL  STOCK  OF  MONEY  IN  UNITED  STATES 
AND 

MONEY  IN  CIRCULATION,  DETERMINED  BY  DEDUCTING  FROM  THE  GENERAL 
STOCK  THE  AMOUNT  HELD  IN  THE  TREASURY  AS  ASSETS  OF  THE 
GOVERNMENT  AND  THE  AMOUNT  HELD  BY  FEDERAL  RE- 
SERVE BANKS  OR  FEDERAL  RESERVE  AGENTS 
AGAINST  ISSUES  OF  FEDERAL  RESERVE  NOTES. 


General  Stock 

In  Circulation 

December 

ii 

U 

a 

1,  1914.... 

1,  1915 

1,  1916 

1,  1917 

4,329,000,000 

u 

u 

a 

a 

March 

1,  1918 

1,  1919 

1,  1920 

1,  1921 

1,  1922 

7,669,000,000 

8,281,000,000 

STOCK  OF 

GOLD  IN  THE  UNITED  STATES, 

1914-1922. 

December 

1,  1914 

• 

it 

1,  1915 

it 

1,  1916 

u 

1,  1917 

a 

1,  1918 

a 

1,  1919 

a 

1,  1920 

a 

1,  1921 

March 

1,  1922 

36 


GROWTH  IN  NUMBER  AND  RESOURCES  OF  BANKS  FROM  STATEMENTS  OF 
THE  COMPTROLLER  AS  OF  JUNE  30,  1914-1921. 


Number  of  Banks  Resources 

Classification  of  Banks  1914  1921  1914  1921 


National  7,525  8,154  $11,482,000,000  $20,518,000,000 

State  (commercial) 14,512  18,875  4,354,000,000  14,199,000,000 

Loan  and  Trust  Companies  1,564  1,474  5,489,000,000  8,181,000,000 

Mutual  Savings  634  623  4,254,000,000  6,041,000,000 

Stock  Savings  1,466  978  1,196,000^000  557,000,000 

Private  1,064  708  196,000,000  175,000,000 


26,765  30,812  $26,971,000,000  $49,671,000,000 


NUMBER  AND  RESOURCES  OF  ALL  MEMBER  BANKS  OF  THE  FEDERAL 

RESERVE  SYSTEM. 


June  30,  1921 

Number  of 
Member  Banks 


Resources 


9,745 


$29,639,000,000 


AGGREGATE  RESOURCES  OF  NATIONAL  BANKS. 

December  31,  1921 

8,169  $19,420,000,000 


There  is  no  information  available  as  to  whether  all  the  banking  institutions  of 
the  country  reported  at  either  period. 


37 


REDISCOUNTS  AND  BILLS  PAYABLE  OF  ALL  NATIONAL  BANKS  IN  COUNTRY 
AT  APPROXIMATE  DATES,  TOWARDS  THE  CLOSE  OF  EACH 
YEAR  1907-1921. 


1907 

1908 

1909 

1910 

1911 

1912 

1913 

1914 


100,000,000  1915  98,000,000 

39.000. 000  1916  89,000,000 

43.000. 000  1917  741,000,000 

71.000. 000  1918  ...  1,380,000,000 

64.000. 000  1919  1,504,000,000 

72.000. 000  1920  2,299,000,000 

100.000. 000  1921  1,007,000,000 

132.000. 000 


REDISCOUNTS  AND  BILLS  PAYABLE  OF  NATIONAL  BANKS  IN  VIRGINIA 
NORTH  CAROLINA,  SOUTH  CAROLINA  AT  APPROXIMATE  DATES 
TOWARDS  THE  CLOSE  OF  EACH  YEAR,  1907-1921. 


Virginia 

North  Carolina 

South  Carolina 

December 

1907  

$ 1,400,000 

1 onn  aaa 

$ 500,000 

1,000,000 
450,000 
2,100,000 

2.700.000 
3,000,000 

3.500.000 

6.800.000 

3.654.000  : 

2.055.000 

4.554.000 

23.988.000 

20.798.000 

26.636.000 

24.392.000  f 

15.251.000 

1908  

1909  

-L  jv  UUjUUU 
1 onn  nnn 

1910  

i ,yuu,uuu 

Q AAA  AAA 

1911  

o,UUU,UUU 

3,200,000 

O 1 AA  AAA 

1912  

1913  

Z,IUU,UUU 

Q C AA  AAA 

1914  

o,OUU,UUU 

<7  A A A AAA 

1915  

i UUjUUU 

A O A A AAA 

1916  

4,ZUU,000 

1.855.000 

4.889.000 

1 o 1 AC  AAA 

1917  

1918  

1919  

lZ,IUo,000 

13.810.000 

25.077.000 

26.178.000 

14.578.000 

1920  

1921  

March  31,  1922 

MONEY  BORROWED  BY  ALL  STATE 

BANKS  IN  NORTH  CAROLINA. 

June 

30,  1914 

a 

23,  1915 

a 

30,  1916 

u 

20,  1917 

u 

29,  1918 

u 

30,  1919 

u 

30,  1920 

u 

30,  1921 

— 

— ■ 

38 


CAPITAL,  SURPLUS,  UNDIVIDED  PROFITS,  MONEY  BORROWED,  INDIVIDUAL  DEPOSITS,  LOANS  AND  RESOURCES 


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Individual  deposits  include  Cashier’s  Checks  and  Certified  Checks. 


MEMBER  BANKS  BORROWING  AS  OF  OCTOBER  31,  1920,  BASIC  LINES  CALCULATED  UPON  AVERAGE  RESERVE  BALANCE 

IN  SEPTEMBER. 


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A MEMORANDUM  OF  THE  AMOUNT  OF  CREDIT  EXTENDED  TO  BANKS  IN 
NORTH  CAROLINA,  SOUTH  CAROLINA  AND  VIRGINIA  IN  A FEW 
TYPICAL  CASES  ON  A GIVEN  DATE— APRIL  28,  1921. 

This  memorandum  is  intended  to  show  the  credit  strain  under  which  these  banks 
operated,  due  to  conditions  in  their  localities,  and  the  extraordinary  assistance  given 
them  by  the  Federal  Reserve  Bank,  while  charges  of  “restriction  of  credit”  were  being 
made  by  misinformed  people.  Note  the  proportion  of  borrowed  money  to  the  deposits 
o±  the  banks  and  to  the  reserve  deposits  carried  in  the  Federal  Reserve  Bank 


Borrowings  from 
F.  R.  Bank  Elsewhere 


Loans 

$ 404,000 

3.978.000 

673.000 

3.559.000 

3.685.000 

1.011.000 

867.000 

150.000 

775.000 

177.000 

1,868,000 

4.359.000 

1.203.000 

10.217.000 
420,378 

346.000 

652.000 

153.000 

4.513.000 

454.000 

756.000 

191.000 

2.397.000 

4.074.000 

420.000 

5.122.000 

171.000 

1.528.000 

200.000 

325.000 

701.000 

608.000 

1.230.000 

305.000 

1.502.000 

337.000 

573.000 

4.877.000 

3.662.000 

16.448.000 

4.428.000 

4.620.000 

4.946.000 


$ 172,000 

786.000 

381.000 

660.000 

713.000 

284.000 

369.000 

88,000 

355.000 

69.000 

469.000 

1.441.000 

536.000 

3.573.000 

170.000 

231.000 

239.000 

40.000 

1.262.000 

218.000 

273.000 

74.000 

802.000 

980.000 

243.000 

906.000 

94.000 

527.000 

63.000 

89.000 

225.000 

270.000 

386.000 

175.000 

409.000 

160.000 

194.000 

1.362.000 

1.002.000 

3.234.000 

1.551.000 

781.000 

1.590.000 


$ 15,000 

205.000 

97.000 

239.000 

243.000 

15.000 


16,000 

62,000 

10,000 

25.000 

175.000 

20.000 

250.000 

25.000 

35.000 

15.000 

24.000 

670.000 

25.000 

55.000 

20.000 

378.000 

745.000 


83.000 

10.000 

89.000 

37.000 

87.000 

145.000 

61.000 

135.000 

5,000 


40.000 

35.000 


845,000 


325.000 

519.000 


Deposits  Reserve 


$ 191,000 

2,808,000 

394.000 

2.302.000 

2.682.000 

557.000 

448.000 

62,000 

447.000 

51.000 

1.376.000 

3.748.000 

705.000 

7.166.000 

224.000 

142.000 

160.000 

66.000 

3.574.000 

250.000 

372.000 

69,000 

1.955.000 

3.966.000 

220.000 

3.241.000 

111,000 

1.109.000 

100,000 

161,000 

322.000 

288.000 

658.000 

111.000 

1.202.000 

332.000 

212.000 

3.366.000 

2.958.000 

14,217,000 

3.152.000 

3.030.000 

2.876.000 


$ 11,837 

271,597 
overdrawn 
102,799 
129,986 
13,153 
17,592 
4,482 
16,497 
overdrawn 
overdrawn 
176,731 
34,233 
458,957  ; 
7,665 
overdrawn 
25,086  l 
4,604 
179,145 
6,557 
15,663 
3,148  / 
100,596  ; 
183,207  l 
20,527 
141,143  j 
4,150  | 
41,812  1 
3,020  1 
3,330  1 
13,681  1 
12,225  I 

6,226  J 

overdrawn 
overdrawn 
overdrawn  j 
16,725  j 
228,417 
195,328 
709,242 
147,783 
overdrawn 
45,165 


42 


DECREASE  IN  INDIVIDUAL  DEPOSITS  IN  NORTH  CAROLINA  BANKS,  MEMBER  AND  NON-MEMBER,  PAR  AND  NON-PAR. 

FEBRUARY  28,  1920 — JUNE  30,  1921. 


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The  foregoing  comparisons  apply  to  the  same  banks  on  the  different  dates  given.  Only  individual  deposits  are  taken  into  account. 


\ 


